The banking sector needs all the help it can get now

Both the government and the central bank should take special care of the banking sector during the ongoing economic fallout given it as the heart of the economy, said Selim RF Hussain, managing director of Brac Bank.

All sectors will face trouble if banks fail to run their operations smoothly as they are dedicated to circulating money to every part of the society, he told The Daily Star in an interview recently.

Besides, banks will have to implement the lion's share of the stimulus packages worth more than Tk 100,000 crore announced by the government to help the affected industries.

The return on investment from the packages is only 2-2.5 per cent for banks, but the lenders have to bear 100 per cent credit risk.

This means banks will face difficulties if a portion of the stimulus funds disbursed by them turns into default loans.

"We have been requesting the Bangladesh Bank for years to introduce a credit guarantee scheme for the loans disbursed to small and medium enterprises."

Such a scheme is the need of the hour given the ongoing economic meltdown thanks to the cascading impact of the pandemic.

All types of customers are now rushing to banks for the stimulus funds, but there is no scope to entertain all of their requests, Hussain said.

Lenders will have to disburse the fund cautiously and keep in mind that the central bank will realise the money from them on time.

He went on to thank the central bank for taking a host of measures to inject liquidity into banks such that they can tackle the fallout of the pandemic.

Bringing down the cash reserve ratio and the policy rate has helped banks run their operations properly during the present crisis, said Hussain, who joined Brac Bank in November 2015 as its managing director after a stint at IDLC Finance in the same position.

He, however, fears that defaulted loans in the banking sector may increase in the days to come due to the pandemic-induced consequences across the board.

As of December last year, default loans in the banking sector amounted to Tk 94,313 crore, which is 9.32 per cent of the total loans.

But Brac Bank's default loans are 3.56 per cent of its total loans of Tk 20,206 crore -- an indication of the lender's strong financial health.  

The bank has given a three-month moratorium to all of its SME and retail customers.

"Brac Bank is always giving special attention to the SME sector as this is one of the major growth drivers of the economy."

The lender started its journey in 2001 with the vision to provide banking solutions to the unbanked small and medium entrepreneurs.

Inspired by its parent organisation Brac, the largest non-governmental organisation in the world, the lender introduced small loans for the SME sector to particularly bring the grassroots entrepreneurs under the umbrella of formal banking services.

Approximately half of Brac Bank's lending portfolio is for the SMEs.

"We have already lowered different charges for all clients to give them breathing space from the ongoing crisis," Hussain said.

Depositors do not pay any charge or face any hassles if they cannot pay the instalment of pension and fixed deposit schemes during the ongoing crisis, he said, adding that deposit growth in Brac Bank was remarkable even during the shutdown.

Banks will have to preserve money to absorb shocks deriving from the probable upward trends of default loans, which will bolster their capital base as well.

Brac Bank, however, enjoys a robust capital adequacy ratio of 15.07 per cent, which is much more than the banking sector's average ratio of 11.57 per cent as of December last year.

Long-term plans should be taken to steer clear of a recession as the world took nearly 10 years to recover from the financial meltdown in 2007.

"This gives an indication that the ongoing crisis is not going away in less than 2-3 years."

But Hussain is sanguine that the economy will rebound in the shortest possible time as the pandemic in Bangladesh is not as severe as it is in Europe and North America.

"The Bangladeshi people are hardworking and much more resilient against shocks, while the economy has achieved tremendous growth in recent years, which is quite remarkable compared to the peer nations."

Hussain also said that banks should consider the health and safety issues of their employees seriously while running operations amid the pandemic. Or else, the lenders will face severe problems.

"When we had realised that the country would face the pandemic, we promptly took several initiatives to improve our digital banking and other operations."

The lender's foreign trade is now running in full swing, riding on its strong digital platform.

Besides, 85 per cent of its total branches of 187 were kept open by way of digital support, which helped widen the lender's business during the countrywide shutdown, which was lifted on June 1.

Brac Bank has taken a set of measures to stand beside the people during the crisis, Hussain said.

The bank has made a contribution of Tk 5 crore to the prime minister's relief fund, while its employees gave Tk 1.73 crore from their salaries of April to Brac's emergency food assistance fund.

The lender will also give 6,000 sets of personal protective equipment to a government hospital.

Brac Bank's return on asset is now about 1.6-1.7 per cent, which is far better than the industry average of 0.4-0.5 per cent.

In 2019, the bank logged in Tk 458.26 crore in net profit, down 19.22 per cent year-on-year.

Its board of directors had announced 7.50 per cent cash and 7.50 per cent bonus dividends for its shareholders.

Sponsors hold 44.29 per cent of the bank's shares, foreign investors 43.23 per cent, institutes 6.86 per cent and retail investors 5.62 per cent.

Listed on the Dhaka Stock Exchange in 2007, the lender's shares closed at Tk 31.90.