Banks under liquidity stress, 2023 will be a more challenging year: MTBL MD
Import restrictions amid foreign currency crisis have hampered production in the private sector, with businesses on the brink of defaulting on bank loans, said Syed Mahbubur Rahman, managing director and chief executive officer, Mutual Trust Bank Limited (MTBL).
He said banks are already under liquidity stress and the coming recession will intensify the crisis, while businesses bear the brunt of a gas shortage.
Highlighting 2023 as a crucial year, the seasoned banker, with a career spanning 33 years, spoke to The Business Standard on the banking sector challenges amid the global crisis to mark the 23rd anniversary of MTBL to be celebrated on Monday.
What is the current situation of the banking sector?
At the moment, banks are feeling the liquidity stress. The central bank has pumped $4.5 billion into the market so far this fiscal year to provide foreign currency liquidity support. As a result, about Tk45,000 crore has been transferred to the central bank from vault from banking system.
Again, credit growth has been high due to low interest rates.
The result is the pressure on market liquidity. We are trying to deal with it so that no customer can say they did not get their money on demand.
The interest margin in the sector is gradually falling due to the interest rate cap. However, in August 2021, there was a circular to fix interest rates on fixed deposits at the rate of inflation. Fifty percent of our total deposits is fixed deposit. As the September inflation rate is over 9%, we are supposed to collect deposits at that rate, but again the lending rate is capped at 9%. So we have no margin.
The central bank hiked the repo rate to 5.75%. As a result, corporate clients, who provide a large portion of deposits other than fixed deposits, are also demanding higher interest rates for deposits. Some banks are borrowing at short notice at above 8% now. As a result, the cost of borrowing is significantly increasing.
Our non-earning assets, NPLs, are increasing. This reduces the effective lending rate. A bank's main income comes from interest, which is called core banking profit. However, we are increasing the balance sheet amount, but our interest income, which is the bank's main revenue stream, is declining.
Our profit is increasing due to the increase in foreign exchange and trade. Many banks have made this kind of income, but this avenue may not be there in the future. Everyone, including our partner banks, is concerned about this. Even if income increases from other avenues, it will not be sustainable. To increase the sustainability of the bank, the core banking profit has to be increased. Otherwise, the sector will not be able to weather any kind of storm.
There is also a crisis of foreign currency liquidity. Banks are cautious in opening LC due to foreign currency crisis. This is also a matter of concern. Because of this, companies will not be able to collect raw material, resulting in an increase in non-performing loans (NPLs).
We need to watch how forex positions shape up at the end of the year as we see LC opening has come down significantly.
With the global recession, the crisis may be exacerbated. Add to all these, there is the prevailing energy crisis. Factories are not getting gas properly. Despite the demand in the market, their production is falling. Exports will also decrease. There is local demand for products, but if no one produces anything, how can that be met? The government doesn't really have much to do here.
Lack of skilled manpower is another crisis for the banking sector. Many private banks are running without managing directors. Many banks have been established but there is no effective human resource to manage those. It is becoming difficult to find skilled people, especially for bank risk management. Bad loans are increasing due to lack of skilled personnel in the credit risk sector. There is also a lack of operational risk management skills. At the same time, even those who are skilled cannot work properly due to lack of good governance in organisation as seen in many cases.
Our capital strength is also low in our banking sector. This ratio is very good in our neighbouring countries, but our banks are lowly capitalised. The problem with this is that you cannot weather any storm if one appears.
How will the banking sector of Bangladesh fight this situation?
This will be the main challenge for the sector in 2023. If there is a gas shortage and liquidity crisis, especially in foreign currency, which will force us into a situation of increasing distressed assets.
Our banks should be aggressively going forward in this situation by closely monitoring customers, regularly reviewing their portfolios and consolidating balance sheets. Existing customers need to be nursed as well.
The taka has devalued by almost 20%, while we had to increase the loans against LC to customers.
As a result, credit growth is also increasing. We had a normal growth in the balance sheet because of devaluation. In other words, our job is to do the work by nursing the existing customer base. I think that should be our focus this fiscal year, alongside managing liquidity in a prudent manner.
What are your plans for MTBL?
In its 23 years of establishment, MTBL has established itself as a good brand mainly because of good governance. The board of directors has given independence to the management of the bank. They always advise on strategy and policy. In terms of our expectations, we could have done better. We are trying to figure out how to do what we have been unable to do so far. As a bank, we always try to be efficient. We are the only bank with a centralised trade system. We have been trying to get it going for several years. This results in uninterrupted service, setting a standard. Many frauds can also be prevented.
We have also set up a digital banking division. In the last two-three years, we have tried to strengthen the digital platform. Customers can now open accounts and transact sitting at home. I think banks should be physical, that means they will have a physical presence, but also be digitally enriched. I will not aggressively open branches, but will grow partnerships with fintech institutions. We will provide customers with a better cash management system, so that the number of customers increases. We want to increase our wallet. We want the lending or deposit system to be fully automated.
Do you have a target on how you will invest in the bank's digital division?
In the next 2-3 years we will invest Tk150-200 crores in this platform. For this, we have made a team of programmers. As a result we do not have to depend on any other company. Besides, we are also launching virtual prepaid cards.
What kind of profit do you want in the future?
We currently have 5.5% NPL. We plan to clean it up in the next few years. Besides, we want sustainable profit. Our sponsors have no demand. They want us to become the most responsible bank. In the coming days, we will try to formulate need-based solutions. We are giving Bravery Awards each year. We have given recognition to the 13 firemen who died in the Sitakunda fire.
How has your journey been in your banking career?
I started my banking career in 1989, amassing 33 years of experience. There have been many ups and downs. The profession is challenging, but I enjoy it. I have two daughters. The elder one is in a Boston consulting group, which is one of the best in the world, and my younger daughter works for Google.
In my spare time I like to relax and watch TV. I also like to travel, although now that there are some restrictions on cross-border travel, the frequency is less.