After a steady growth for over a decade, some headwinds have appeared in the economy of Bangladesh which can potentially thwart the progress.
In an exclusive interview with The Business Standard Chief Executive Officer of Standard Chartered Bangladesh Naser Ezaz Bijoy said declining credit growth, nonperforming loans, financial crime and falling trade are few of the challenges the economy is facing now.
Talking about the economic growth of the country, he said the private sector credit growth has gone down to below 10 percent now, up from 18 percent three years ago and the latest decision to cap lending rate may further slow the growth.
"We have to acknowledge and identify the problems and take decisive actions accordingly," said Bijoy.
He said that there is nothing wrong with the government's intention to bring down the interest rates, but its implications need to be thought out.
Pointing to Kenya as an example, the SCB boss said the African country's credit growth nosedived to just four percent from 20 percent as a result of capping the lending rate.
"We used to lend at single digit interest rate three years ago. Let the market decide the rate," said the banker.
Asked about the impact on small and medium enterprises, he said that these enterprises account for two-third of businesses in the country and may be hit hard by the interest rate ceiling.
Bijoy also pointed out alternatives to capping the lending rate, which can significantly bring down the loan cost.
He said that launching a credit guarantee scheme for SME loans can reduce lending rate significantly as SMEs have three percentage points higher NPL compared to the corporate sector.
Bijoy explained how Malaysia introduced a scheme in 1972.
The Credit Guarantee Corporation Malaysia Berhad (CGC) is 78.65 percent owned by Bank Negara Malaysia (central bank) and 21.35 percent by the commercial banks.
CGC aims to assist micro, small and medium-sized enterprises without collateral, or with inadequate track record to obtain credit facilities from financial institutions, by providing guarantee to cover on such facilities.
It has provided over 470,000 guarantees and financing to MSMEs valued over RM75 billion since its inception. In addition, CGC provides credit information and credit rating services through its subsidiary Credit Bureau Malaysia, which enables CGC to assist MSMEs build credit history and track record to enhance their credibility.
On the operational side, Bijoy said that automation and integration with different agencies of the government can also cut cost for loans.
The government and central bank can take initiatives to integrate some agencies, such as the Bangladesh Bank, National Board of Revenue and Election Commission (for identity checks), he said.
"If that integration happens, banks can make credit assessment with artificial intelligence. It can reduce our costs," said the CEO of SCB Bangladesh, a British multinational bank.
Bijoy heads a bank that has a very rich history in Bangladesh. SCB started its operation in Bangladesh in 1948. After acquiring Grindlays in 2000, the bank's presence in Bangladesh counts up to 115 years.
The bank remains one of the top banks in the country and has introduced many 'first' products, including letter of credit for sovereign Bangladesh, first credit card, commodity hedging and financing for independent power plant, etc.
The latest success of the bank is Japan Tobacco's takeover of Dhaka Tobacco, a concern of Akij Group, for nearly $1.5 billion.
It is the only foreign bank that is integrated with bkash, the country's leading mobile financial services.
Asked about unique features of the multinational bank, Bijoy said "We always try to innovate and that is how we are different from other banks. There are 59 banks and competition is very high, so we must be innovative," he said.
He gave an example:
For last three to four years the bank has focused on corridor business, such as Japan-Bangladesh corridor, China-Bangladesh and Korea-Bangladesh, which has been profitable.
"Under this corridor business we provide end-to-end services, from buying bid documents to financing. This corridor business has been doing very well," said Bijoy.
All these efforts paid off. The bank made 26 percent higher net profit in 2018. Bijoy did not disclose 2019's profits due to regulatory restrictions, but he hinted that the bank had a strong profit in 2019.
Yet Bijoy focused on some new avenues that can cement the bank's position further.
Bijoy told The Business Standard that his bank is going to develop a strategy to provide remittance service round the clock through use of technology.
SCB has also decided to focus on Islamic banking, which according to Bijoy is gaining momentum.
"We are revisiting our strategy about Islamic banking. We will introduce some new products soon."
He also elaborated on the success strategy of SCB.
Good governance and a rigorous risk management framework have helped the bank grow steadily. The bank's strong network in 70 countries also helps it get clients.
"As the CEO of the bank, I do not have the loan approval authority. I can only recommend," said Bijoy adding that "it ensures independence."
But trust of clients is the biggest driver for the success of the bank, he said.
"Our cost of fund is very low compared to other banks. So, we can select clients and offer competitive rates," Bijoy concluded.