Brac Bank on a roll

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Brac Bank is a private commercial lender, but it put the unbanked and sustainable banking at the heart of its business from the start instead of making big profits due to its deep belief that if it can serve society well and customers, the profits will be paid automatically.

The bank agreed. Today, Brac Bank is one of the most profitable lenders in Bangladesh.

“Our focus is different from others. We have been focusing on development from the start and we want to add value to our customers and to society,” Brac Bank Managing Director Selim RF Hussain said recently, in an interview with the Daily Star.

When the bank was established in 2001, the lender focused on lending to SMEs, although extending funding to this segment was not a popular proposition at the time. Conventional banks were concentrating as much as possible on business banking services, as they considered lending to SMEs to be very risky and not commercially viable.

“But disbursing Tk100 crore among 10,000 SME clients instead of a single large borrower has a big impact on society and the economy,” said Hussain, who was recently elected president of the Bankers Association of Canada. Bangladesh, the platform of the chief executives of the banking sector.

Micro, small and medium enterprises (MSMEs) are essential for economic growth, covering 99.97 percent of all businesses. They absorb around 86 percent of the workforce.

With this in mind, the bank disbursed 53% of its outstanding loans to the tune of Tk 28,244 crore in the SME sector.

The SME loan ratio was 39% when Hussain joined Brac Bank in November 2015 as Managing Director after leading IDLC Finance, one of the leading non-bank financial institutions, in the same position.

He says disbursing loans between small businesses is expensive because the funds have to be distributed to many borrowers. For this reason, the fund is qualified as intensive prudential credit.

The bank’s cost / income ratio in the SME segment is around 85-90%. This means that the returns on SME loans are low.

“Yet we are trying to increase the volume of SME lending because it is our mandate,” Hussain said.

The cost-to-income ratio of SME activities jumped to 170% just after the central bank capped the lending rate at 9% in April 2020.

Brac Bank had loaned 16% before the cap. But as the rate fell to single digits overnight, it resulted in a large amount of losses for the bank.

“But, we have turned around by improving various processes, including upgrading technology and deploying new products. “

The bank recorded a net profit of Tk 284 crore in the first half of 2021.

Hussain praises SME entrepreneurs as being resilient and compliant. The bank faced only 3 percent of defaulted loans in the SME segment.

Brac Bank disbursed 17 percent of loans in the retail sector and 30 percent in the corporate segment.

Within the framework of retail banking, the bank’s credit card received enormous popularity, becoming one of the major players in the card business.

The outstanding loans in the credit card segment stand at Tk 850 crore, of which less than 4 percent has turned sour.

Brac Bank’s overall loan default ratio stood at 3.5% in September last year, well below the industry’s average NPL ratio of 8.12%.

In step with the changing times, the bank has stepped up its efforts to boost its digital bank.

About 22% of its total transactions were settled through online platforms as of January 2020. Currently, the ratio is 57%.

“This means that we have come a long way in the digital segment over the past two years,” said the senior executive.

The pandemic has also helped accelerate the digital banking agenda, as it has changed the behavior of customers about the way they communicate, work, study, conduct financial transactions and play.

However, the implementation of digital tools at all levels over the next two years will not be possible, as Bangladesh is a money-based economy.

So there is a strong demand for coordination between digital and physical banking services in order to deliver financial services to people from all walks of life, he said.

In 2021, the bank rolled out a banking app named “Astha” (trust), which caught the attention of customers. The app helps customers to bank efficiently from the comfort of their homes.

“Brac Bank will invest to upgrade its online platform consistently as a cashless company will be established in Bangladesh in the future.”

The bank has also won the trust of local and foreign investors.

The rate of foreign ownership in Brac Bank is around 38 percent, while no other bank in the country has more than 5 percent of external ownership.

Hussain is full of praise for the board of directors, which has never intervened in the management of the day-to-day operations of Brac Bank.

Among local lenders, Brac Bank has obtained a senior credit rating from S&P and Moody’s, the two major credit rating agencies in the world.

Recently, Hussain was granted an extension to continue in the same position for approximately five years. And he has set himself the goal of increasing the bank’s market share in all business segments – SMEs, retail and corporate.

“Technology as well as skilled human resources will help achieve the goals,” he said.

Hussain says the economy benefited greatly in 2020 from the rollout of the loan cap, as it revitalized lending to the private sector. But the gradual removal of the cap should be reconsidered.

The International Monetary Fund has also urged the government to phase out the loan limit.

“The interest rate cap may be revised first for the SME and retail sectors,” Hussain added.


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