Nur Alam Liton, a young school teacher, has recently posted a photo on his Facebook wall with a caption saying "Do not be confused, brothers! I am in a small training not in a bank."
The photo shows him sitting in front of a well-decorated desk identical to that in a bank office. His social media post reflects how passionate he still is for a bank job despite being in another profession.
A job in a bank is a much sought-after choice for many as it offers lucrative salaries with many other benefits – much higher than that of any other service sector.
But how are bankers doing with their favourite jobs these days? This question seems fair to ask now as there is an ongoing disquiet among bank employees over their salary cuts.
Some banks have already declared an above 10 percent pay cut in a move to reduce operating expenses amid the coronavirus pandemic.
The once sought after bank jobs are now on shaky grounds as many bankers had to face legal actions on charges of corruption committed by bank directors and politically-powerful individuals.
The BASIC Bank loan scam involving Tk4,000 crore is an instance where many employees, the branch manager and even the managing directors had to lose their jobs and land in jail on charges of the loan swindle.
However, the main accused in the case, BASIC Bank's then chairman Sheikh Abdul Hye Bachchu and other persons involved remain immune.
In the cases of other big loan scams like the Hallmark Group and Crescent Group where loans were approved by the boards, only the bank employees suffered. No board directors or any other person involved have been punished so far.
The present salary cut issue came as a shock to the bankers who are already dealing with corruption of bank directors and influential defaulters.
The policy relaxation to defaulters and the enforcement of single-digit lending rate have severely affected the banks' profitability, prompting them to slash salaries of their employees to reduce operational costs.
How defaulters are being privileged with bank employees' income
On May 16 last year, the Bangladesh Bank issued a circular, giving a special loan rescheduling facility allowing defaulters to regularise their loans for 10 years by paying a 2 percent down-payment instead of the existing 10 percent to 15 percent with one year grace period.
Under the policy, loan amounting to Tk50,000 crore was rescheduled in December last year, which means this large amount got stuck for 10 years, putting the banks' money flows in a severe crisis.
The loan recovery of banks drastically declined due to such a long time rescheduling facility.
From January this year, banks had to carry out a government order to bring down lending rate at a single digit to help businesses.
Under pressure from the government, they have begun to bring down lending rate at 9 percent from the beginning of this year which was fully implemented from April 1. The new interest rate cap has worsened the banks' profitability.
When the banking sector was going through such difficulties, the Covid-19 outbreak dealt another blow to its revenue.
The Bangladesh Bank suspended interest payments on all loans for two months – April and May – to ease the effect of the pandemic on the borrowers, which cost the banks around Tk15,000 crore.
Defaulters were awarded again on the grounds of the pandemic when the central bank instructed all banks not to classify loans for nine months – from January to June –even if borrowers fail to pay during the time.
All these efforts to save defaulters and facilitate businessmen have ultimately impacted the bank employees' salaries.
The Bangladesh Association of Banks' (BAB) recommendation for salary cuts sparked huge unrest in the entire banking sector.
The BAB, a platform of bank shareholders, instructed all banks to cut 15 percent of employee salaries to limit expenses.
The association issued 13 point instructions to reduce operating costs, but curiously it did not mention anything about the reduction of default loans which are mainly eating up the banks' profits.
Even, they did not mention reducing their annual dividends when still the return of equities of most banks is above 10 percent.
Although bank directors want to slash employee salaries for reducing costs, they do not appear to compromise on their own facilities, which was reflected in their recent appeal to the finance minister for extending the facility of non-classification till December this year.
If they are anxious about the banks' operating expenses, how could they call for extending the non-payment period to a year, which will ultimately hit the banks' profits?
Industry insiders said it was a trick to face the losses from non-payment of loans by cutting down employees' salaries.
In 2018, the total number of employees in the banking sector was 1,52,506, and per head operating revenue was Tk36.37 lakh and per head cost was about Tk19 lakh, according to Bangladesh Bank data.
How default loans erode profits
High default loans require high provision maintenance. Provision is an expense set aside as an allowance for uncollected loans and loan payments.
This provision is used to cover several factors associated with potential loan losses, including bad loans, customer defaults and renegotiated terms of a loan that incur lower-than-previously-estimated payments.
In 2018, the banking sector's total revenue was Tk55,480 crore, of which 26 percent was spent for provision.
Provision expenditure increased by 98 percent in 2018 from the previous year, according to Bangladesh Bank data. It was because default loans went up to 11 percent that year.
Although, the huge loan rescheduling brought down the default loans at 9 percent in December last year, it will not give the banks relief from provisioning expenditure as they will have to maintain provision against the entire amount of Tk50,000 crore rescheduled under the special package.
The operating profit of the banking sector was around Tk26,000 crore in 2018 which is likely to come down to around Tk16,000 crore in 2019 due to the pressure of implementing single digit lending rate and high provisioning costs, said Syed Mahbubur Rahman, former chairman of ABB (Association of Bankers Bangladesh) and managing director of Mutual Trust Bank.
The default loan risk is higher this year due to non-payments amid the pandemic, he said.
He said the shrinking of profitability is prompting banks to cut salaries to reduce costs.
Instance of how banks spend money
Exim Bank has recently announced a 15 percent pay cut for its employees with the suspension of all increments and promotions. Nazrul Islam Mazumder, chairman of the bank, is also the chairman of BAB.
In 2019, the bank spent Tk363 crore for salary and the 15 percent pay cut will save Tk54 crore for the bank.
A different picture will emerge if an analysis of per employee revenue and expenditure is considered.
The bank has 2,956 employees and annual payment per head was Tk12.28 lakh last year when per head revenue was almost four times higher – above Tk45 lakh, according to the bank's annual statement.
The other expenditure shows that the bank spent Tk80 crore on CSR (Corporate Social Responsibility) purposes. Zakat expenditure was Tk34 crore last year, almost double from the previous year.
The bank spent Tk13 crore for donation, Tk19 crore for travel and Tk17 crore was spent for vehicles.
However, instead of cutting avoidable expenses, the bank moved to cut the salaries of employees who are its core asset.
Besides, City Bank, Al-Arafah Islami Bank and AB Bank have cut employee salaries and several others are planning to go for the same move.
Expenditure scenario is almost similar in all private banks
It is absolutely a bad practice to go for cutting salaries of employees to reduce costs during this emergency period, said Selim RF Hussain, chief executive officer and managing director of Brac Bank.
He said the banks made large profits in the previous years, so they should have had the strength to bear these temporary losses amid the pandemic. It is unjust to cut salaries of employees during this unfortunate time.
Banks will have to improve efficiency and adopt a digital transformation to minimise costs. Cutting salaries is not a solution for survival, he opined.
Inflated profits give inflated salaries
Currently, the banks' profit margin before tax is around 70 percent to 80 percent – highest among any other sectors. The implementation of single digit rate will bring it down to near 20 percent where 10 percent earnings are considered good for other businesses.
Take the Eastern Bank for example. The bank – considered one of the most efficient banks in fund management – has been managing funds at 4 percent to 5 percent rate. If the average administrative cost of 1.5 percent is calculated, it stands at 5.5 percent to 6.5 percent.
Despite its low fund cost, the bank has been charging interest between 12 percent and 15 percent on loans. So, the revenue margin of the bank is above 120 percent.The net profit of this bank was Tk311 crore in 2018.
But it will come down to 63 percent if the 9 percent lending rate is implemented from April 1. Also, the bank will have to pay corporate tax on income.
The scenario is almost the same in many private commercial banks.
Foreign banks are ahead of local banks in profit-making with a high lending rate. The Standard Chartered Bank, for example, was lending at 7.33 times higher rate than its deposit rate as of March this year.
Despite their low fund cost, some banks are lending at a higher rate as the average rate in the industry is high. So, some banks are making high expenses on operations, depriving manufacturing sectors of low-cost financing.
The private bankers enjoy a comparatively high salary, which is considered one of the primary reasons for the banks' high operating costs.
A management trainee officer, an entry-level post of a bank, gets a salary between Tk50,000 and Tk70,000.
The highest salary of the top executive rank of a local private bank is Tk20 lakh.
However, the bankers are not as efficient as they earn, reflecting the rising non-performing loans and deterioration of the banks' health.
The implementation of the single-digit will rationalise the banks' profit and force them to be more efficient in fund management, said a senior executive of a bank.
It will also prompt banks to go for job cuts or slash pay structure to bring balance in salary with other sectors, he said.