Consumer credit soars as BB overlooked

Posted by BankInfo on Thu, Apr 17 2014 12:03 pm

Dull industrial credit demand forces banks to resort to provide unproductive loans

The commercial banks have relied heavily on consumer financing last year as industrial credit disbursement suffered a setback in the wake of the political unrest ahead of the national election held on January 5.

They had to go beyond Bangladesh Bank’s instruction to increase credit exposure in the productive sector instead of consumer financing, bankers said.

The consumer credit started growing from the beginning of last year due to lack of loan demand by the big entrepreneurs, said a senior executive of the central bank. 

He said the commercial banks are also interested in consumer financing as it helps increase interest earnings more than that of industrial term-loan.

“The consumer financing increased rapidly last year as industrial expansion and business activities remained almost stuck up and credit growth slowed down amid political turmoil,” said a senior executive of private bank.

In order to achieve credit growth target bank focused on agriculture sector and consumer financing last year, he added.

He said Bangladesh Bank had verbally asked the commercial banks to disburse loan focusing on agriculture and other sector as loan demand in industrial sector was very shy.

The consumer financing registered a substantial 32% growth in the first quarter (January-March) of 2013 compared to a negative growth of 5% in previous quarter (October-December) of 2012. During the same period total loan growth increased by 0.83% from 3.06%, according to the central bank data.

The consumer loan increased by 10.5% to Tk28,021 crore in April-June quarter of 2013 and over 18% to Tk33,140 crore in July-September quarter.

The industrial loan growth was negative by 3% to Tk1,47,361 crore in July-September quarter compared to the growth of 1.76% in the preceding quarter.

In January 2012, Bangladesh Bank had slashed the loan margin ratio to 70:30 from 80:20 in housing finance and the ratio for car loans and all other consumer financing to 30:70 from 50:50.

It brought the changes in the margin ratios against the backdrop of the rising trend of consumer loans despite repeated attempts by the regulator to discourage consumer loans.

The average credit growth of the banking sector was 15% in 2011 while the growth of consumer loan was 19%.

Consumer financing growth came down in 2012 due to the strong monitoring of Bangladesh Bank.

Credit growth to the agriculture sector increased by 7.34% in July-September of 2013 compared to the growth by 3.03% in the previous quarter.

Bangladesh Bank had issued a circular on April 25, 2012 asking the commercial banks not to exceed the consumer credit growth more than its total average growth of loan portfolios.

It took the measure to achieve a sustainable economic growth through increasing credit flow to the productive sectors by slashing loans from unproductive sectors, including consumer financing.

The central bank, however, overlooked the rising trend of consumer financing than industrial loan growth so the banks could achieve the credit target, said a senior executive of Bangladesh Bank. 

News:Dhaka Tribune/17-Apr-2014


Challenges for new banks

Posted by BankInfo on Thu, Apr 17 2014 11:53 am

Over the past decade, Bangladesh economy enjoyed favourable economic environment and grew at approximately 6 percent with tolerable inflation. Major economic indicators like GDP, exports and imports have tripled in the last 10 years; industrialisation and trade have soared to unprecedented heights.
Growth in the “real” economy has fuelled the growth of the country's banking sector which has seen an increase in deposits by over 400 percent and assets by around 500 percent in the last 10 years. Simultaneously, per capita GDP has more than doubled and yet more than half the population is still unbanked.
The central bank's decision to allow licences to nine new banks has the merit. Regardless of political motivations, a logical argument can be made beyond the unbanked population argument that more competition will improve service quality and ultimately benefit the consumers.
From the sponsors standpoint, a logical argument can be made about the potential economic benefit for the sponsors based upon past record, which is estimated to be 25 percent+ over 10 years from inception of a bank approximately 15 percent higher than the risk free rate in Bangladesh.
Past performance do not guarantee future returns
These all sound great theoretically but the ground reality is different, and challenges faced by the management and shareholders of new banks cannot be minimised. The banking industry is already highly competitive. Therefore, unless these new banks get their act together fast, shareholders could suffer a major setback and even some could face extinction.
Show me the money
Let us refresh our memory about how banks make profit. Banks make money primarily in three ways. Firstly, from the spread between the deposit and lending rates; Secondly, from the fees they charge for various products and services, and thirdly from proprietary investments.
This is obviously overly simplified; however, all these modes of earnings potential are possible to some extent provided that the demand is growing, banks are well capitalised and have the proper human resource; and the rest happens automatically. So what are the challenges?
It is all about people
At present, the banking sector is suffering from an acute shortage of skilled and adept professionals.
Except for a few foreign and local banks, unfortunately the quality of staff beyond the CEO, managing director and DMD levels drops drastically. Depth and breadth of knowledge unfortunately is poor. This is an ominous sign for the industry since professional human resource is essential for the growth and development of the industry. These weaknesses obviously facilitate frauds, mismanagement, and value destruction for shareholders and encourage and breed substandard corporate governance culture in the financial sector.
The first challenge for new banks will be attracting the right leadership. It will not be easy to attract talents for a newly established entity. The most likely outcomes are - either you end up recruiting an unqualified team due to budget constraints or you end up paying a significant premium for talents.
If you recruit weak managers, then they end up attracting even weaker subordinates and we all know how that works.
Attracting deposits
While most banks offer similar commodity type products, they are combating with each other in most cases on price/yield, realistically, the new entrants can gain an initial advantage and capture market share by offering higher deposit rates.
Falling deposit rates at present driven by recent political uncertainty, risk averseness, lack of demand for loans and recent spike in demand for short-term government securities provide a lower rate environment, nevertheless provide no relative advantage to the new banks.
Lending to the right clients
Contrary to popular believe that aggressive marketing or in this case aggressive lending may help quickly capture market share and drive banks' profitability, in reality success of these new banks in the long-run depends on ensuring that they lend to the right clients. Most of us are aware of the result of aggressive growth in the lending portfolios.
As a lender, you only get the stated interest and the principal within the maturity date at best and you have no upside like equity investors. This is why one must wonder why many banks even today lend to entities with no real capital or a sliver of capital created from revaluation and other financial engineering.
If the new banks fall into this temptation, this could be the first nail in the coffin. Chasing yield and risking principal is the fastest way to go bankrupt.
Tapping the untapped
With around half the population unbanked, the biggest opportunity for new banks exists for targeting unbanked rural populations with the right products and services. Opening cost-efficient branches and nimble service centres in suburban and rural areas can substantially boost asset size and simultaneously, bring the much-needed diversification that every lender requires to spread-out its risk.
Last mover advantage
Despite the challenges, new banks have some vantage points comparing to the existing banks. Currently the industry maintains NPL of 8.93 percent+, which is similar to the levels back in 2007. While all the other government and private commercial banks have been working hard to clean their books, new banks have the luxury to formulate carefully thought-out strategies for market penetration.

It is a well-established fact that many of the existing players are required to recapitalisation to maintain minimum capital adequacy. It is a daunting challenge to concentrate both on business expansion and recapitalisation effectively.
For the past 10 years, in the backdrop of consistent economic growth driven by export and remittance, balance sheets of banks have inflated due to aggressive lending, stockmarket and real-estate bubble and finally the head-wind; the sector is now facing serious challenges due to poor balance sheet. All these incidents provide a roadmap of do's and don'ts for a new bank.
Embracing new technology
The biggest advantage for a new bank is the opportunity to embrace technologies to get an edge over the existing players. We expect disruptive technologies to impact banking globally and also, to some extent, in Bangladesh.
For instance, mobile technology now provides the plumbing for delivering products and services unthinkable even a few years back. In Bangladesh, more than 70 percent of the population lives in rural areas, where financial services are generally inaccessible. Furthermore, with the advent of 3G technology in Bangladesh, internet penetration promises to grow exponentially in the coming years.
Lessons can be learnt from organisations such as bKash, which has proven how financial services can be delivered conveniently and at a low-cost. We believe this is just the beginning and more game-changing technologies are expected.
As a proponent of a free market, increased supply of banks is generally good for the consumers. However, the road to success is not smooth at all and expected to be even more challenging in the future. Now it is not an option but essential to invest in intellectual capital, attracting deposits at competitive rates, focusing on unbanked population, selecting right clients, learning from past mistakes, embracing new technology, and most importantly developing effective leadership.
How well these banks execute on these dimensions will finally determine the fate of these banks in the future.

News:The Daily Star/17-Apr-2014

ONE Bank opens two branches in Chittagong

Posted by BankInfo on Thu, Apr 17 2014 11:33 am

Zahur Ullah, Chairman of Executive Committee of ONE Bank Limited, inaugurates Anderkilla Branch of the bank in Chittagong recently.


 ONE Bank Limited inaugurated its Anderkilla and Anowara branches in Chittagong recently.

Zahur Ullah, Chairman of Executive Committee of the bank inaugurated the branches, said a press release.

Chowdhury Hasan Mahmud Hasni, Panel Mayor of Chittagong City Corporation, Abu Sufiyan, President of Chittagong Press Club, M A Malek, Editor of Daily Azadi, Kazi Rukunuddin Ahmed, Sayed Nurul Amin, Directors, M. Fakhrul Alam, Managing Director and senior executives of the bank were present also present.

News:Daily Sun/17-Apr-2014

Mutual Trust Bank holds anti-money laundering confce

Posted by BankInfo on Thu, Apr 17 2014 11:21 am

Md. Hashem Chowdhury, Deputy Managing Director and Chief Anti-Money Laundering Compliance Officer (CAMLCO) of MTB, speaks at the Branch Anti-Money Laundering Compliance Officers’ (BAMLCO) Conference 2014 at Bangladesh Academy for Rural Development (BARD) in Comilla recently.

 Mutual Trust Bank Limited organised Branch Anti-Money Laundering Compliance Officers’ (BAMLCO) Conference-2014 on Anti-Money Laundering and Combating the Financing of Terrorism.

A total of 140 participants including 94 MTB branche officials attended the conference at the Bangladesh Academy for Rural Development (BARD) in Comilla recently, said a press release.

News:Daily Sun/17-Apr-2014

Prime Bank marks 19th anniversary

Posted by BankInfo on Thu, Apr 17 2014 10:51 am

Md. Ehsan Khasru, Managing Director and CEO of Prime Bank Limited, speaks at a press conference on the occasion of the bank’s 19th anniversary at a hotel in Dhaka on Wednesday.

 Prime Bank Limited celebrated its 19th anniversary at a city hotel on Wednesday.

To mark the occasion a press conference was organized by the bank, said a press release.

Md. Ehsan Khasru, Managing Director and CEO of the Bank spoke at the press conference. Quazi A.S.M. Anisul Kabir and Habibur Rahman, Deputy Managing Directors and senior officials of the bank were present.

Md. Ehsan Khasru thanked the shareholders, customers and well wishers of the bank for their support towards the bank for reaching the current position.

Md. Ehsan Khasru said, Prime Bank is going to create a milestone this month by being included with the fourth largest credit card brand of the world known as JCB, in the Bangladeshi market solely. Not only that the bank is also going to launch a Retail Loan Product like Home Treasure.

Under the scheme, the customers will be able to take retail loans against their mortgaged homes. Moreover, promotional activities with the School Banking “My First Account” and the Biometric Smart Card “Prime Cash” will be launched throughout the year. 

News:Daily Sun/17-Apr-2014
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