Nine new banks face competitive pressure

Nine new banks are struggling to do business, facing intense competition from 47 old peers in lending and attracting deposits, industry insiders said.

Lending is the biggest challenge for the new banks as borrowers demand the lowest interest rate without considering the banks' cost of funds.

“Often, we cannot afford the interest rate a borrower wants,” said Muklesur Rahman, managing director of NRB Bank.

According to these banks, the cost of their funds is between 12 and 14 percent, which is well within a single digit for many old banks. In terms of lending, if a new bank offers a borrower 11 percent, an old bank offers 10.5 percent.

“We are in a double bind -- depositors demand more and borrowers offer less. It's tough to get a margin,” said Abdul Kuddus, managing director of NRB Global Bank.

Touhidul Alam Khan, deputy managing director (business) of Modhumoti Bank, said attracting low-cost deposits by competing with other banks and lending to appropriate clients have become a big challenge for them.

These new banks commenced business at a bad time last year, when the country was facing months of political unrest. Nine banks came into the market between April and October of 2013. Despite debate and opposition from different quarters, Bangladesh Bank allowed these fresh banks to take the tally to 56.

As on September 30 this year, Union Bank collected the highest deposit worth Tk 3,025 crore, followed by NRB Commercial with Tk 1,586 crore, South Bangla Agriculture Bank Tk 1,349 crore and NRB Global Tk 1,095 crore; others' deposits were less than Tk 1,000 crore, BB data showed.

Union Bank also topped the list in lending. The bank lent Tk 2,323 crore till September 30 this year, followed by NRB Commercial with Tk 1,127 crore, South Bangla Agriculture Tk 1,050 crore and NRB Global Tk 752 crore.

In terms of income, Modhumoti Bank earned the highest of nearly Tk 32 crore in operating profits in one year through September this year, followed by Union Bank with Tk 30 crore and South Bangla Agriculture Tk 20 crore.

“It has become tough to make profit. Borrowers do not even want to pay service charges,” said Abdul Kader, manager of Union Bank's Panthapath branch.

However, some bankers see opportunities among the untapped sectors and un-banked population at this challenging time. “We have to go for funding small and medium enterprises and rural firms. The spread is greater there,” said Rahman of NRB Bank. “We will lend to build entrepreneurs.”

Khan of Modhumoti Bank said new banks have a great chance to become solid and transparent as still they have zero non-performing loans in their portfolios.

“If the new banks are cautious in lending and move forward complying with rules and regulations, there is huge scope to make a solid footprint in the banking industry,” he said.