Despite irregularities and loan scams, banks in Bangladesh have played a key role in building a vibrant export-oriented apparel sector with strong backward and forward linkage industries.
Services sectors that account for over 50 percent of the country's GDP have also grown riding on bank loans.
Now, after a decade-long boom, banks have hit a slump as the devastation of the Covid-19 pandemic has brought the business back down to earth. This will have a direct repercussions on creation of new employment as well.
Bankers say, the impending devastation to the sector was not even imaginable even back in March. Incomes from interest and non-interest sources have plummeted so fast within a month from April that the industry is in a shock. The non-repayment rate of loans has risen to a historic high due to a halt in business activities for the last three months.
Take, for example, the case of City Bank -- a leading first generation private bank in Bangladesh. The 37-years-old lender has seen a steep fall in all its key business indicators during the pandemic.
The bank is the leader in the credit card segment, but non-payment of credit card bills has surged to 46 percent at the end of May from 14 percent in the pre-pandemic period, thus impacting the lender's one of the three major income earners very negatively.
The situation is worse in retail and SME banking as non-payment rates of loans in these two areas have skyrocketed to 52 percent and 81 percent, respectively, from 16 percent and 2.5 percent earlier.
Like some other banks, handling trade – export and import – was a cash cow for City Bank. The bank handled $220 million worth of import LCs on average each month before the Covid-19 outbreak, but that figure has nosedived to about one-third, only $80 million in May. The bank's income from different kinds of fees was down by Tk80 crore in the first five months till May this year, when compared to that of the corresponding period of the previous year.
"The trend will continue in the months to come unless Covid-19 is contained," said Mashrur Arefin, managing director of City Bank.
While giving a presentation before his colleagues explaining why the bank has gone for a 10 percent pay cut from June this year to December next year, he also said the bank has taken up a number of measures that will save them Tk76 crore from operating expenses this year.
"There are many multi-bank customers, so the situation is more or less the same in other banks," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank that has seen its income from non-funded sources (non-interest) go down by half so far this year.
Business from LCs for MTB has gone down by 40 percent.
The monthly trade volume of Standard Chartered Bangladesh (SCB) has diminished by 50 percent so far in the second quarter of this year from that of the first quarter. Declining exports and imports have impacted the bank's profits badly as trade and LC confirmation charges account for a good portion of its income.
SCB had overdue credit card bills within 5 percent before the Covid-19 outbreak, but now it has doubled.
"We are expecting a better volume of business in the third quarter, provided that Covid-19 infections can be contained soon," said Naser Ezaz Bijoy, managing director of SCB.
Impacts on job market
Banks collect deposits from individuals and organisations to finance industries, which ultimately create much-needed jobs for 20 lakh youths who enter the market every year.
Jobs in the banking sector are considered one of the best choices for white collar jobs in Bangladesh. They recruit the best talents with higher salaries than any other industry offers here.
However, that choice has all but disappeared in the current situation. "There will be no hiring and no replacement in 2020," said Bijoy of SCB.
City Bank, MTB, Brac Bank and other lenders have made it clear that there will be no recruitment this year.
Bangladesh Bank data show all banks together opened 284 new branches in 2019. If 10 employees are deployed in a branch, then the banking sector created some 2,840 jobs last year. No new recruitment means around 3,000 university graduates will miss the chance to start a career in the banking sector this year.
A more worrisome fact for the sector is that many of the banks are under pressure to cut jobs, let alone hire fresh talents, as they will try to slim down their operational expenditures by reducing branches and other operations.
City Bank has cut staff salaries by 10 percent in a bid to save jobs, according to the bank's CEO.
South Bangla Agriculture and Commerce Bank, a fourth generation bank that got licence in 2013, announced on Tuesday that it has no plan to cut jobs and salaries at the time of the pandemic.
NPLs may rise further
Bankers said non-performing loans (NPLs) will shoot up as overdue on all loans has increased significantly due to the impacts of the Covid-19 pandemic on business activities.
Syed Mahbubur Rahman of MTB argued that a borrower of retail or SME loan will face difficulties in paying back loans as it may take months for them to come back to their pre-Covid-19 level of business and income.
"It could be that banks will have to extend the loan repayment period for many borrowers," he said.
The Bangladesh Bank has already ordered banks not to label borrowers as defaulters, even if they fail to pay back their loans till September this year.
On June 10, the central bank in another letter allowed banks to collect the suspended interest of the two months – April and May – in equal monthly instalments in twelve months starting from July 2020.
These two measures may help banks to control their rising NPL rate, according to a Bangladesh Bank official.
NPLs declined to 9.2 percent in December 2019 from 12 percent in September of the same year because of a loan rescheduling spree.
However, many analysts estimate that NPL rate would be double than the official figure if rescheduling, written-off and loans pending with court cases are taken into account.