'Slow loan growth is a major challenge in the banking sector'

Sketch: TBS

What is the situation of Bangladesh's overall economy now? How is MTB performing?

Bangladesh's economy is currently going through a major crisis. The situation has been compounded by a combination of factors including political instability, global crisis, global political uncertainty and domestic crisis. 

Because of these challenges, MTB is not doing very well. But we are in a steady state. We are doing well in terms of retaining customers or segments.

If we look at the country's trade situation, it has dipped as imports have plummeted. But our bank's imports have increased. Exports have also increased somewhat. Considering all these, we can say that our bank's position is fairly stable. 

How is the growth, loan and deposit situation in the banking sector now?

Now there is some growth in bank deposits but no growth in loan levels. Our overall private credit growth is currently around 6.5%. Capital machinery imports are very low as there is no initiative to build new factories. That is why loan disbursements are not increasing in banks. However, deposits are increasing. 

The reason for the recent increase in liquidity in banks is that the government has bought about US$2.0 billion from the foreign currency market in the last one and a half months. This has added about 24 thousand crore taka to the banks, as a result of which activity in the interbank market has increased a lot. Besides, the dependence of the previous government on banks for loans has now reduced a lot.  

Infographic: TBS

The problem now is that there is no balance sheet growth because of excessive defaulters. Meanwhile, there is no loan growth. This is not just the picture of MTB, but of the entire sector. No loan growth means that capital machineries are not being imported, industrial factories are not being built —  which is a big challenge to employment creation. 

Although the unemployment rate is only 5–6%, jobs are being created mainly in the informal sector. Opportunities in the formal sector are limited. Corporates are now moving towards automation — increasing productivity through machines with fewer people. So new job opportunities are few.

The SME sector is also under pressure. Non-performing loans (NPLs) have increased a lot — up to 20–22%. The medium segment has taken the biggest hit, because they usually operate on a single revenue stream. 

How is the bank's governance, sustainable banking and digital transformation going?

Our biggest plus point is governance. There have been many problems in the last 15 years, but the board has helped us by ensuring good governance. There was pressure, but we have moved forward like a good bank riding on good governance. 

We are also developing ourselves as a sustainable bank. Recently, we have received an award as a "Sustainable Bank". We are a front runner in digital transformation. There are about 400+ APIs. We have the largest number of fintech partnerships in Bangladesh.

Our MTB New App covers almost everything that customers need on a daily basis. For example, tuition fees, utility bills, and other expenses can be paid through this app. In terms of loans, we have also launched "faster" digital loans and are gradually expanding them.

How the bank is planning to deal with economic velocity, demographic dividend and fiscal challenges?

The economy is not buoyant — there is no economic velocity. If a person gets a job, his salary will create purchasing power in the market, new production and services will be created — but now the cycle is slow. GDP growth is at 3–3.5%, next year it will be around 4%. For a country like ours, it needs to be around 8–10%.

Many benefits we are enjoying now will also go away if LDC graduation happens in 2026. Concessional funds, development support are decreasing. Payment interest and moratorium period are also decreasing. If we do not increase productivity, we will fall into the "middle income trap".

If young people are not employed, they will become a burden on society in the future. Therefore, it is very important to revive economic activity and create new job opportunities now.

In terms of fiscal structure, tax deterrence is low whereas debt-to-GDP ratio is 40–45%. But debt servicing capacity is limited. As a result, even though the government borrows from banks, private sector credit growth is being affected.

How can tariffs affect exports?

Our exports have decreased slightly in the last two months, because imports and exports generally remain low during this time. However, the positive side is that the tariffs imposed on us are now relatively competitive — about 20% lower than those of India and Vietnam. This is certainly good news.

However, no one can say for sure how much exports will increase as a result of these tariff benefits. Because, if consumption in our main market (the United States) goes down, then the size of the market will also shrink. If purchasing power in the United States decreases due to power shortages or economic recession, we may face unsold inventory.

In such a situation, we will have to find alternative markets — such as the EU countries. But even there, India, China, and Vietnam have already taken a strong position, so competition will be more intense.

So the most important thing now is to diversify markets and products — not just ready-made garments, but to enter new markets with new products.

But unfortunately, not enough research is being conducted in our country. This lack of research will be a big challenge in the future to increase exports. So we have to diversify our export basket and go to the market with new products, not just garments (around 80–90%).

Bank deposits are growing, but lending rates are not decreasing accordingly. What is your prediction?

Deposit growth is rising; as a result, liquidity has increased in the market. Banks have now started reducing the interest rate on deposits. I think lending rates will also gradually decrease in the future.

However, the big problem is that our non-performing assets (NPA) have increased. Due to the decrease in bill advances, real profits have decreased. If banks currently give loans at 13% interest, the average interest income from them is not 13%. Because the entire loan given is not being received.

For example, if there is 10% NPA in a loan of 100 taka, then even though a return of 10 taka is supposed to be received, the actual return is less. As a result, the spread is not increasing, and the net yield is decreasing. Because as NPA shoots up, real income nosedives. 

In addition, cash income is recognised only when actual payment is received. As a result, advances are not increasing, and loan disbursement is also slowing down. The main reason for this is NPA-related stress, which is affecting the lending activities of banks. 

How is the forex market and dollar flow? How are banks benefitting from dollar flow?

Our floating rate is currently quite stable in the foreign exchange market. Along with the decrease in import demand, export earning has experienced growth. In addition, remittance flow has also increased. As a result, the country's reserves have risen.

Currently, $2.5 to 3 billion in remittances are coming in every month. This has brought about a degree of stability in the forex market. 

This stability is positive for the banking sector. Due to sufficient foreign exchange reserves, the productivity of banks has increased. Earlier, fluctuations in market rates led to misunderstandings with customers, but now such incidents have reduced to a great extent. Transaction profits are also relatively stable now.