In an exclusive interview with the Dhaka Tribune's Mehedi Hasan, Southeast Bank Limited Managing Director M Kamal Hossain discusses the bank’s vision and challenges for the country’s banking sector in the near future.
Kamal started his banking career as a probationary officer with National Bank Limited in 1983. He joined Southeast Bank in 2003, as a vice president, and went on to become an additional managing director.
Later, he served as the bank's acting managing director from March 2017. He earned his bachelor's and master's degrees in public administration from Chittagong University.
Southeast Bank has performed outstandingly, especially in operating profits in the last year. What is your secret to this success?
Last year, we maintained a balanced loan and deposit portfolio, which contributed to our profitability. Moreover, the extensive recovery drive against classified and written-off loans also played a significant role.
Another major factor was securing new deposits and reliable loan clients. All these factors enabled us to reach a milestone operating profit of more than Tk1,000 crore for the very first time.
What are your ambitions for 2019?
As one of the largest banks in Bangladesh, our main objective in 2019 is to maintain a balanced deposit and loan portfolio; and achieve sustainable growth.
At present, Southeast Bank has total loans of Tk26,500 crore and deposits of Tk30,200 crore. Nurturing this large portfolio and emphasizing recovering NPLs [non-performing loans] will certainly ensure sustainable growth. We will try to prevent additional NPLs and intensify the drive to recover existing NPLs.
Additionally, as a reputed bank, we will definitely try to attract new deposits and lend money to reliable clients.
What challenges is the banking sector currently facing?
As we are all aware, the banking sector has been facing a liquidity crisis since the later part of 2018. Moreover, the foreign exchange market has also been unstable. Overall, NPLs have increased by a substantial margin. As a result of the aforementioned factors, banks will find it difficult to replicate 2017's operating profit performance.
NPLs peaked at almost Tk100,000 crore in 2018. How can the sector rein in the growing NPLs and recover the money?
We must realize that the existing level of NPLs has not reached this alarming figure overnight. Rather, it has piled up over the years. Since, in most cases, defaulters remain out of our reach, we have no alternative but to take legal action against loan defaulters.
To this end, different law enforcement agencies have to strongly assist banks to recover NPLs. We have to build up a culture where good borrowers are rewarded and defaulters are punished, thus creating an environment where borrowers will be compelled to repay their loans to maintain their social and family status.
However, defaulters who are unable to repay loans, for valid reasons, should have the opportunity to adjust their liability through rescheduling, restructuring, or other amicable settlements.
What are the challenges to finding a reliable borrower?
In the present competitive market, the main challenge to finding a reliable borrower is the pricing of loans. There exists an unhealthy competition among banks to grab the business of the good borrowers by offering concessional packages such as lower interest rates, providing margin commissions, or reducing other charges.
How can cash flows to the banking sector be increased?
To increase cash flows to the banking sector, the flow of foreign remittances though proper banking channels has to be ensured. The government’s present initiative to encourage foreign remittance inflows is praiseworthy. If we can ensure privileged benefits for the remittance-earning expatriates, the flow of remittances to Bangladesh will be further boosted.
Furthermore, we have to export skilled manpower abroad in order to generate a significant flow of inward remittances. Additionally, our search for new, unexplored, markets must be continued to increase exports. The financial inclusion of mass people all over the country, will also help to channel the funds presently circulating outside the banking medium.
What are the challenges to bring lending interest rates down to single digits?
The main challenges to bringing the interest rate to single digit are: the procurement of new deposits at lower rates, for example at 6% per annum; the existing high cost deposit with midterm and long-term maturity; the existing rate of government savings certificates; and the cost associated with bearing huge volume of NPLs.
Another important factor regarding the cost of deposits is that different government organizations hold a significant portion of institutional deposits. While offering these deposits, interest rates from different banks are taken like auctions and then deposits are offered at the highest quoted interest rate. This practice should be avoided by offering government organizations a fixed deposit rate. This will reduce the overall cost of deposits and allow banks to offer loans at single digit interest rates.
Do you think Bangladesh needs more banks, based on the size of our economy?
The existing banks are already facing tremendous competition in the present socio-economic context. At this time, the entry of new banks will exert more pressure on the banking industry as the unhealthy competition among banks will increase.
However, a large portion of our rural areas are yet to get banking facilities. Therefore, existing banks need to expand to the unexplored rural and semi-urban areas and extend their banking services to the unbanked population of Bangladesh.