How Modhumoti Bank kept defaults low and depositors safe for over a decade

While the banking sector grapples with rising NPLs and eroding public trust, Modhumoti Bank stands out with no capital shortfall, no provisioning gap, and over half a million satisfied customers, the result of a long-term vision rooted in discipline and integrity

When we founded Modhumoti Bank nearly 12 years ago, we had a simple but powerful vision — to build a bank that could uphold good governance, prioritise customer trust, and grow sustainably. Looking back now, I believe we've stayed true to that path.

Even today, our classified loan ratio is just 2.30%, while the industry average has shot past 24%. We have zero capital shortfall and no provisioning gaps. Most importantly, no depositor has ever had to leave our bank empty-handed. That says something about the kind of institution we've tried to build: responsible, steady, and people-focused.

The banking sector, especially in the last five to six years, has gone through tremendous challenges both globally and within our borders. Despite these headwinds, we were one of only 12 banks in the country that managed to finalise and submit our audited financials for 2024 on time. That's not just a matter of pride; it reflects the internal discipline and accountability we operate with.

If you go through our 2024 audited report, you'll see that we are in a strong position across all key indicators. Our capital adequacy ratio stands at 15.8%, well above the regulatory requirement of 12.5%. Our advance-to-deposit ratio is at 78%, significantly below the central bank's maximum threshold, and our liquidity position is stable. When it comes to operational efficiency, often gauged by the cost-to-income ratio, ours is just 35%, one of the lowest in the industry.

In banking, trust is earned through performance, not promises. Customers want to know their money is safe. And when they see a bank consistently delivering strong financials, maintaining low default rates, and offering dependable services, that's when trust is built. Over 500,000 valued clients continue to bank with us, knowing their deposits are secure. In fact, our credit rating has recently been upgraded to AA2, which is further evidence of our stability.

As of now, our total deposit base stands at around Tk8,000 crore, and we're targeting Tk12,000 crore by the end of this year. To get there, we're expanding through new branches, sub-branches, and agent banking points, while also developing new products tailored to our customers' needs.

One of the reasons we've kept our NPLs low is that we've never rushed. From the beginning, our board and management team prioritised good governance. We saw early on that when a bank grows quickly without control, it risks taking on poor-quality loans. Instead of chasing aggressive growth, we focused on building a strong internal structure and hiring the right people. Our customer selection is rigorous — we don't compromise on that.

Equally important is monitoring. We've developed a robust credit risk management framework that allows us to stay closely connected with borrowers. Issuing a loan is just the beginning; you must monitor it continuously, maintain communication, and intervene when needed. That's how you keep your portfolio healthy. And after 12 years, our low default ratio stands as proof that this approach works.

We don't target just one or two sectors. We lend across the board, though we are currently not pursuing large exposure lending. Our sweet spot lies in collateral-backed corporate loans in the Tk25–30 crore range. We're also placing more emphasis on the SME sector, using our 52 branches to distribute SME loans across the country. Agriculture is another key area of focus — we've already disbursed loans directly to farmers through our 643 agent banking points.

In fact, just last week, we were in Jhenaidah, providing loans to grassroots farmers for purchasing threshers, irrigation equipment, and storage systems. We're actively thinking about how we can finance their evolving needs.

Our current expansion plan includes increasing our number of branches and sub-branches to 60 this year and adding 25 more agent banking points. On the product side, we're working on several new offerings for both deposits and loans. We plan to launch new agriculture loan products very soon.

There's been a trend in the market where many banks offer unusually high interest rates on deposits or loans. We've taken a moderate stance. Our lending rates are aligned with our cost of funds, and because our classified loans are low, we can offer reasonable interest rates without putting pressure on the system.

Our foreign exchange business has also seen significant growth. In 2023, we handled trade finance worth over Tk10,000 crore, with 60% from exports and 40% from imports. That's quite significant for a bank of our size.

However, with the newly imposed tariffs by the US under Trump's administration, some of our export-oriented clients, especially in garments, are facing challenges. We're working closely with them to offer advice and support during this transition.

Looking ahead, 2025 will undoubtedly be challenging for the banking industry. Maintaining portfolio quality will be tough, given the strained business climate both at home and abroad. Many sectors are struggling, and that directly affects banks. But we're doing what we've always done — staying close to our clients, guiding them where needed, and supporting them through uncertainty.

Technology has been a key part of our customer service strategy. Our GoSmart app allows retail customers to do almost all their banking on their phones. For our corporate clients, we offer internet banking so they can manage payroll, bills, and even pay government challans from their offices. From utility bill payments to instant fund transfers, our goal is to make banking easy and seamless. This year, we're planning to add even more services to the app based on customer feedback.

At Modhumoti Bank, we've always believed that trust, discipline, and long-term thinking are more valuable than short-term profits. That belief has guided us for the past 12 years, and it's the same philosophy that will drive us forward into the future.

This interview was conducted by The Business Standard's staff correspondent Tonmoy Modak.