When a lack of credit demand – amid the Covid-19 pandemic – squeezed banks' lending activities, Social Islami Bank Limited (SIBL) adopted a different strategy for sustainable business by focusing on non-funded business coming out of core banking activities.
The bank will emphasise non-direct financing instead of direct lending, targeting the implementation of mega development projects, said Quazi Osman Ali, managing director of the bank.
Non-funded business is lending in the form of bank guarantees instead of direct financing.
In an interview with The Business Standard on the occasion of the 25th anniversary of the bank on 22 November, Ali said credit growth will rebound slowly until next year so banks must pursue different business strategies to survive.
Keeping that in mind, SIBL focused on non-funded business and expansion of alternative banking tools like digital products, sub-branch and agent banking, he added.
He said there are a lot of business opportunities in the mega projects being implemented by the government and his bank will grasp the opportunities by providing loans in the form of bank guarantees.
As the risk of rising non-performing loans (NPLs) will be high next year, SIBL will be conservative in direct financing, he said while talking about the bank's business strategy post-pandemic.
He mentioned that the pandemic has led to an around 15% loss to the bank's business for this year – which it will recover by March next year.
The business recovery will mostly come from non-funded business activities, he added.
Even though the bank had continuously profited since Ali joined the bank in October 2017, after a massive overhaul of the bank's management, the pandemic eroded its profit by 13% in the July-September period of this year.
The bank made a net profit of Tk27.39 crore in the quarter, down from Tk31.58 crore in the same period of last year.
However, the bank's profit in the first nine months of the current year was 9% higher than the previous year, according to the bank's financial statement.
"Banks were able to profit, even after various challenges, by reducing the deposit cost," said Ali.
He said the bank had a high cost of deposit which was released after the implementation of the single digit lending rate. The low deposit cost saved money for the bank, helping it to make profit, he continued, "The low deposit cost will not create problems for the bank as it took an alternate option to hunt deposits from rural areas."
The bank expanded the number of its sub-branches vastly in rural areas to reach unbanked people at low cost, he said.
The expansion of sub-branches helped the bank to collect deposits of Tk300 crore since the year 2017.
The bank established 545 sub-branches during this period, he said.
Agent banking is another plan to expand to collect deposits from rural areas. The alternate banking widow helped the bank collect deposits of Tk200 crore, said Ali.
The bank has already opened 133 agent banking outlets across the country and is now planning to introduce QR Codes, in the next month, to enable depositors to withdraw cash without a cheque.
As part of digital expansion, the bank has already introduced the e-Account service to facilitate people to open bank accounts from home, he maintained.
Ali has devoted 33 years to a career in banking and was serving First Security Islami Bank as an additional managing director before joining SIBL.
In 2016, the net profit of the bank was Tk229 crore, which came down to Tk152 crore last year, according to the bank.