'Transaction banking – the future of corporate banking'

As customers move away from weaker banks, opportunities in corporate and commercial banking are growing for well-managed institutions like BRAC Bank. To capitalise on this, banks must leverage robust transaction banking platforms to meet clients' needs. Despite initial challenges, BRAC Bank has become a leader in transaction banking. Beyond banking, it contributes to Bangladesh's food and energy security, aiming to become an impactful institution with a unique brand. Tareq Refat Ullah Khan, deputy managing director of BRAC Bank, shared these insights in an interview with Tonmoy Modak of The Business Standard.

How has BRAC Bank rapidly evolved from an SME-focused bank to a recognised leader in corporate and commercial banking in a short time?

Our bank was founded by Sir Fazle Hasan Abed with the vision of bridging a critical gap in the banking industry: the lack of tailored services for Small and Medium Enterprises (SMEs). He recognised that conventional banks were not adequately addressing the unique needs of this sector. This insight led us to focus on SME banking, while still operating as a full-service conventional bank rather than exclusively an SME bank.

Initially, we faced major challenges. Our limited branch network restricted access to SME clients, and we found their needs differed from microfinance borrowers. While microfinance loans are short-term, SMEs require medium-term financing. Adapting the microfinance model for SME lending led to rising Non-Performing Loans (NPLs).

Around 2010, we revised our strategy to include larger loan disbursements. The aim was to ease pressure from NPLs and create room for a more sustainable approach to SME lending. This strategic shift enabled us to manage our portfolio more effectively while continuing to serve the SME sector.

In 2017, we focused on corporate banking with the goal of becoming the industry's preferred partner. Corporate and commercial loans account for 60% of the total banking portfolio, but risk appetites vary. We adopted a selective approach, partnering only with organisations that align with our risk profile. This strategy has built a client base where 90% meet our criteria. Following three years of platform development, completed in 2020, our corporate banking division has grown significantly, reinforcing our commitment to sustainable expansion and strategic partnerships in the industry.

Corporate banking is more than just disbursing loans. We provide tailored transaction solutions to meet each client's specific business needs, facilitating automatic loan repayment. For example, a leading pharmaceutical company facing liquidity issues from delayed cash collections benefited from our same-day deposit services via agent banking. We also developed "CORPnet," a platform to streamline company payments, including duties, salaries, and foreign vendor payments. In essence, we offer problem-based solutions, ensuring businesses run more efficiently while meeting their financial needs.

Our client-centric approach is supported by a team of experts in all areas of corporate banking. Recognising the risks of large corporate loans, we ensure active financial oversight to protect both the bank and borrowers. This pragmatic model has proven successful for BRAC Bank, with our corporate banking portfolio expanding annually while maintaining a low Non-Performing Loan (NPL) ratio. This approach ensures continued growth and stability.

Our board of directors prioritises portfolio diversification as a key risk mitigation strategy. Currently, our portfolio allocation consists of 43% corporate banking, 47% SME, and 10% retail banking. Only a few banks in Asia operate with such a strong presence across all three segments.

You've mentioned corporate and commercial banking; how did institutional banking become part of the equation?

Corporate and institutional banking are distinct areas. We define institutional clients as government and private organisations with autonomous bodies, like Bangladesh Petroleum Corporation (BPC) and Bangladesh Agricultural Development Corporation (BADC). We introduced this segment last year, aligning with BRAC Bank's mission to support the government and contribute to social and economic development. Financing institutions like BPC and BADC directly supports national energy and food security.

How is Bangladesh's corporate and institutional banking landscape evolving, and what role is BRAC Bank playing in this transformation?

We believe we are at the forefront of this transformation. Our ability to provide comprehensive, 360-degree support sets us apart. Transaction banking represents the future of corporate banking, and structuring financial solutions around this requires robust platforms and support systems. This holistic approach allows us to deliver client-centric solutions while minimising risk. Our success stems from this strategy, and we are seeing others adopt our model. Ultimately, we aim to establish BRAC Bank as a role model, becoming impactful across all sectors.

How does corporate and institutional banking drive growth in Bangladesh, and what makes BRAC Bank stand out?

National food security is a major achievement for Bangladesh, a significant improvement from previous food shortages. Institutions like BADC and BIRI have boosted domestic agricultural production, though some essential commodities like wheat and oil remain under-produced. We finance companies involved in importing and processing these products, recognising their role in supplementing supply. 95% of our corporate banking clients are in the manufacturing sector, and we support them across the entire value chain, including financing the export of surplus food products to enhance food security.

A substantial 70% of our total loan portfolio is dedicated to sustainable financing, with 20% specifically allocated to green initiatives. This commitment also extends to promoting financial inclusion. In corporate banking, we actively contribute to both employment generation and the financial inclusion of women. For example, we have financed 87 green-certified garment manufacturing clients, creating approximately 2.50 lakh jobs, with women making up 60-70% of the workforce.

With corporate, institutional banking making up 43% of BRAC Bank's portfolio, what is your strategy and vision for aligning it with sustainability goals?

While asset size is a common metric in retail and SME banking, we prioritise transaction volume in corporate and institutional banking, as it better reflects our scope, including both funded and non-funded outstandings. For instance, our trade volume tripled in the past three years, reaching nearly $6 billion in forex trade last year, up from $2 billion. This achievement is significant, as last year's total trade volume was matched by ten banks, and we are now close to the leader in the country.

Our future vision is to become the preferred transaction banking partner for our clients. We are working towards this goal by integrating trade, cash management, and structured financing into a comprehensive transaction banking platform.

In addition to our overall benchmarks, we maintain sector-specific risk appetites. For example, we exclude industries like shipbreaking due to misalignment with our risk profile. Similarly, we avoid term financing for coal-based power projects and tobacco production, as these activities are environmentally harmful. Despite these exclusions, significant opportunities remain in Bangladesh that align with our objectives and risk appetite.

We anticipate consolidation within the Bangladeshi banking sector in the near future, which is likely to create more business opportunities and require banks to have robust corporate and institutional banking platforms. We are proactively building that capacity, adding new facilities each year to position ourselves for future growth.

For example, BRAC Bank financed the import of Bangladesh's largest Supramax oil tanker, with a carrying capacity of 1.20 lakh deadweight tonnage (DWT). Operating such large vessels requires specialised expertise, and not all Asian countries have this capability. These ships represent significant investments, showcasing BRAC Bank's ability to finance large-scale projects. Ultimately, our vision is to become the most impactful bank in Bangladesh.