Retail banking: A paradigm shift
The use of technology has widened the reach of banking services. And a big part of growth of the industry can be attributed to the surge in retail banking
ASMA Begum, 45, a widow and mother of two, was tense about her daughter, who was eligible to wed. Her husband died 10 years back and left her nothing but a small piece of land at Bashabo in Dhaka. It was then that her son, a college graduate, informed her of wedding loans that several banks offer.
She took in loans of Tk 1 lakh, to be returned in three years at 18 percent, from a private commercial bank. She pays around Tk 3,300 a month as installment from the income from house rent.
Again, an executive of a private organisation took Tk 2 lakh in loans from a bank to send his younger brother abroad. The total process took just one week.
The retail-banking environment is changing fast. A banker from the 1980s cannot imagine the pace at which banks are operating today. Till 2000, banks carried out conventional banking, offered a few deposit and lending products.
Now days, banks offer loans for housing, cars, education, credit cards, marriage, travel, medical treatment, car CNG conversion, festivals, renovation and what not.
Bankers said the increasing use of modern technology has enhanced both the reach and accessibility of banking services. A big part of growth of the banking industry can be attributed to the surge in retail banking.
Retail banking is typical mass-market banking, where individuals use local branches for banking. Services broadly include deposits, lending, cards and remittance.
Bangladesh is witnessing steep growth in the uptake of retail loans for the past 5-6 years. Retail banking has been growing at double-digits for the past few years, riding on the growing middleclass. Now, all private, both local and foreign, and state-owned banks have come up with more and more retail products to attract customers.
In Bangladesh, the total size of the retail banking industry will be at around $500 million or Tk 3,500 crore, excluding SME, according to Standard Chartered Bank Bangladesh, the pioneer and market leader of retail banking in Bangladesh.
Standard Chartered's retail banking is growing at 15 percent a year, against market growth of 13 percent, said Bitopi Das Chowdhury, head of corporate affairs of the bank.
Brac Bank is also moving fast in grabbing market share. The bank is strengthening its foothold, both in terms of network and products.
“We develop products and services on the day-to-day needs of the customers,” said Abedur Rahman Sikder, head of alternate banking of Brac Bank.
The bank has developed many products and customer touch points in the last five years. In addition to deposit and lending products, the bank has developed card products, internet banking, mobile banking, e-commerce and automated teller machines (ATM).
Recently, Brac Bank introduced Hajj cards and travel cards for customer convenience. The bank's debit card business has also been growing fast. It currently has 250 ATMs of its own and developed partnerships with a number of banks to provide easy services to its clients.
“We also want to spread operations in the rural areas with our ATM services,” said Sikder.
Bangladesh Bank (BB) statistics show, in view of the growing demand for consumer loans, the commercial banks have come forward with loans in different areas, such as purchase of flats and household durables, educational expenses, and the wider use of credit cards.
A BB study shows the growth of credit for flat purchase was recorded at 35.9 percent at the end of September 2009 from September 2008, while consumer loans in consumer goods, credit cards, and educational expenses showed a growth of 76.8 percent.
Bankers said improvements in the job market have boosted the salaries of urban consumers, and hence, people feel it is more important to own a house.
“Mass housing sales has been picking up since the second half of 2009, after a lean period of sales in 2007 and 2008, when the army-backed caretaker government was in power,” said a banker at a foreign bank. High-end home sales are also increasing, he said.
Banks charge 10-13 percent in interest rate for home loans.
Auto loans are also gaining momentum in line with the increase in vehicle sales.
“We see good demand for auto loans and it is one of the fastest growing segments for us,” said an official of United Commercial Bank.
The rate of interest varies between 14.5 percent and 17.5 percent for auto loans.
“Our retail banking is growing faster than expectation,” said Mashrur Arefin, head of retail banking of The City Bank.