Bangladesh’s banking sector is heading towards consolidation, with 20 to 25 stronger banks potentially emerging as the main financiers of the economy over the next five to seven years, as weaker institutions struggle with bad loans, capital shortages and declining depositor confidence.
The crisis has exposed the consequences of issuing bank licences for political considerations and allowing influential sponsors to interfere in lending decisions. Restoring confidence will require stronger corporate governance, professional boards and an end to political interference.
In an interview with The Business Standard on the occasion of Mutual Trust Bank’s (MTB) 27th anniversary, Managing Director and CEO Syed Mahbubur Rahman discusses the future of the banking industry, regulatory oversight, lending quality and the challenges facing profitability.
Rahman, who has spent seven years at MTB and more than 37 years in banking, says the bank has strengthened its credit assessment process, keeping the non-performing loan (NPL) ratio of loans disbursed during the past six years at around 1%. MTB’s overall NPL ratio is approximately 6%.
He also outlines plans to raise Tk342 crore in Tier-I capital, potentially through a strategic investor who could strengthen both the bank’s capital base and corporate governance.
TBS: Despite the banking sector’s prolonged crisis, some banks have remained relatively strong. What explains their success?
Syed Mahbubur Rahman: It comes down to corporate governance. If the leadership at the top is sound, an institution can function properly.
The boards of relatively successful banks have continued to perform their responsibilities, resisted interference and held management accountable. They have focused on protecting the fundamentals of banking rather than pursuing short-term profits or dividends.
Eastern Bank, Prime Bank, BRAC Bank, City Bank and Uttara Bank are examples of institutions that have performed relatively well. The main reason is that they have kept political influence out of their operations.
The most important thing for the future is to stop political interference in banking.
The late finance minister Abul Maal Abdul Muhith warned that excessive bank licences could turn banks into little more than grocery shops. With many banks struggling and 22 reportedly operating at a loss, has that warning proved correct?
Bank licences were issued for political considerations, and we can see the consequences today.
Bangladesh has more than 60 banks, but I would say no more than 15 to 20 are performing well. The others continue to operate, but their ability to fulfil their basic functions varies considerably. Having too many banks is one of the major reasons for the industry’s current condition.
A bank is fundamentally different from a manufacturing company because it deals with public money. When a bank…
Read More: ‘In future, 20-25 banks may dominate Bangladesh’s economy’
