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Banks are facing investment challenges due to lower rates of interest in lending and excess liquidity, tells Mamoon Mahmood Shah, Managing Director & CEO of NRB Bank, in an interview with The Business Post’s Shahin Howlader, adding that maintainingspread is a vital challenge to earn revenue
The Business Post: What is your plan to take the NRB Bank to a new height?
Mamoon Mahmood Shah: We will introduce digital banking gradually in every branch to reduce the operational costs along with diversifying the lT infrastructure to provide customers with smooth services. Sub-Branches will also be introduced to tap the scope of business at narrow market niche.
Skilled personnel will be deployed and a harmony in the entire management will be brought through establishing good governance to boost-up business.
Besides, techno-centric business wings will also be explored so that common people have easy access to customer service.
TBP: There is huge excess liquidity in banks due to the sluggish private investment trend. How to use it or what are your suggestions to end this?
Mamoon: In recent times banks have access to huge liquidity due to lower investment against the large volume of money injection by the central bank into the financial sector. Both the central bank and the government’s initiative to implement stimulus packages and growth of remittances are mainly responsible for the excess liquidity in the banking sector.
The excess liquidity in the banking sector stood at Tk 1,60,979 crore as of August, up from 105 per cent year-on-year. The growth of remittances and lower credit demand has pushed up the excess liquidity in the banking sector.
Excess liquidity can be used in high-yield investment portfolios such as capital market investment, subordinated bonds, commercial papers and government long term bonds.
Few companies emerged and are doing better despite the pandemic impact in the country. Banks can opt to invest funds in those companies to utilise the excess fund. Companies those emerged are mainly pharmaceuticals companies, online businesses, and lT based companies. Banks should meticulously use the excess fund due to the prevailing pandemic environment because entrepreneurs’ turn over are being squeezed for lower sales volume caused by lower demand in the market.
TBP: What kind of investment challenge are you facing right now?
Mamoon: There is excess liquidity in the banks but the lending interest rate is low. In the given context, maintaining spread is a vital challenge to earn revenue.
Due to the ongoing pandemic, expansion of credit to the good borrowers is also another challenge as good borrowers do not have adequate appetites to utilise their funds to the manufacturing goods or providing service in the service sector.
As the pandemic hit economic activities badly, recovery of funds from the investment is also a great challenge for banks.
TBP: The SME sector contributes a lot to the economy. What is your bank’s step to provide funds to the sector?
Mamoon: NRB Bank has been emphasising to finance the SME sector since the inception of its operations. A dedicated team has been formed to disburse funds in the SME sectors.
NRB Bank has been contributing to implementing the vision of the government and the Bangladesh Bank to accelerate the economic growth and the country’s GDP by financing the SME sector.
TBP: Why many banks are unwilling to disburse loans to small entrepreneurs?
Mamoon: The main reasons behind unwillingness to disburse loans to small entrepreneurs are their lack of experience in handling bank loans and they do not have a strong equity structure to manage fluctuations.
TBP: Does the deferral facility on loan classification create problems? If the BB withdraws the facility, will it push the default loans up?
Mamoon: Deferral facility on loan classification does not usually create any problem. But frequent changes slightly create maintenance problems in the lT infrastructure. Withdrawal of these facilities will push up the default loans. But I would suggest that the regulators should gradually withdraw the deferral facility segment-wise analysing the impact of risks of business nature.
TBP: How did the pandemic change the transaction behaviour and pattern of the customers?
Mamoon: It’s difficult to maintain social distancing due to the physical appearance of the customers and the bankers. Customers are also coming less to the branches out of fear of contracting coronavirus.
Most of the customers are used to technology-based transactions staying at the homes instead of coming to the branch in person. Customers have usually settled their all transactions through our innovative techno process.
TBP: Is it possible to increase the deposit interest rate by keeping the lending rate unchanged?
Mamoon: Bangladesh Bank has asked all the banks to set interest rates on fixed-term deposits with inflation for the betterment of the people depending on the income of savings. Despite having so many challenges, banks are already following the inflation rates on deposits.
I believe the economy cannot run with the negative savings perspective. It should be on positive savings mode.
TBP: Having this tremendous pressure on the income side, what strategy have you adopted to keep the profit flow?
Mamoon: We have adopted various strategies to keep the profit flow. We maintain regulatory spread bringing down the deposit rate.
We are prioritising non-funded income, rationalised operating costs. Multitasking potentiality has been created to reduced cost.
TBP: Who are your major sectors of investment?
Mamoon: Corporate clients, retail customers, SME customers, government investment, subordinated debt, debenture and capital market are our main investment sectors.
TBP: What is the speciality of your bank?
Mamoon: Our bank is a full techno-centric bank and we have robust software required for banking operations. We are fully centralised. We maintain a good relationship with the corporate borrowers. We have a renowned board and management structure and these made us special.
