SME expansion and governance drive record profit in crisis-hit economy: BRAC Bank MD

At a time when Bangladesh's banking sector is facing multiple challenges such as high inflation, an energy crisis and business stagnation, BRAC Bank PLC has achieved a historic milestone.

In the past year, the bank posted a net profit of Tk2,251 crore – the highest profit record in the history of Bangladesh's private commercial banks. Following this remarkable success, the bank has announced a 30% dividend for shareholders this year. To find out the story behind these achievements and the bank's future innovation plans, The Business Standard spoke with Tareq Refat Ullah Khan, managing director of BRAC Bank.

Despite the current instability in the banking sector, how did BRAC Bank achieve this "magical growth"?

This growth did not come in a day or even in a year. This year, we are celebrating our 25th anniversary. Our founder, Sir Fazle Hasan Abed, established this bank with the goal of serving the SME and middle-market sectors.

Over the last 25 years, we have consistently built our business verticals. While the average loan growth across the banking industry was only 6%, BRAC Bank achieved 17% growth. The main reason is our long-term investment and carefully planned infrastructure development. We ensured our presence in remote areas and built a sustainable business model, which is now generating profits.

What does BRAC Bank's current portfolio look like? How diversified is it?

Our portfolio is one of the most diversified not only in Bangladesh but across South Asia. Around 43% to 45% of our total portfolio is SME, 35% to 41% is corporate institutional banking, and 10% to 15% is digital business.

This diversification is the beautiful part of our success. A large portion of our SME loans have a ticket size of only Tk16 lakh to Tk18 lakh. Instead of giving Tk500 crore to one person, we lend to many small entrepreneurs. As a result, our risk is much lower, and we are able to create countless new entrepreneurs.

You made the highest profit among private commercial banks. What is the secret behind this huge profit?

Last year, BRAC Bank made a net profit of Tk2,251 crore, the highest in the country's banking history. I do not see profit in isolation; profit is a logical outcome. If you ensure governance standards, compliance and proper operations, profit follows naturally as a logical sequence.

Not only profit, our return on equity (ROE) and earnings per share (EPS) also increased. Our fund under management, combining deposits and advances, has reached nearly Tk1 lakh crore. Our robust portfolio management and risk appetite in the SME segment have helped us remain profitable.

What is your position regarding non-performing loans (NPLs)?

Although our portfolio is among the largest in the industry, our NPL ratio is among the lowest, at only 2.27%. This has been possible because of our strict risk management and granular risk assessment in the SME sector.

We do not stop after disbursing loans. Through financial inclusion, we bring borrowers into mainstream banking channels. Over the past 25 years, we have created nearly two million small entrepreneurs who were previously outside the banking system.

Many people consider BRAC Bank "document-heavy" when lending to small entrepreneurs. How do you view this?

Under the regulatory framework, some compliance requirements such as trade licences or TIN certificates are necessary. However, small entrepreneurs in remote areas are often unfamiliar with these matters.

They often take loans from NGOs or unconventional channels at high interest rates of more than 22%. We provide them loans at an average rate of 14%, and our relationship officers play an advisory role.

They help entrepreneurs obtain trade licences, prepare annual financial statements and submit tax returns. As a result, they gradually become suitable for formal banking channels.

How flexible is BRAC Bank regarding collateral for small loans?

We are extremely liberal in this regard. According to our data, around 60% to 70% of small loans – and in some cases up to 80% – are provided without any collateral.

Unlike large companies, small entrepreneurs often do not have audited financial statements or tax returns. Therefore, our relationship officers directly visit their businesses, practically assess their sales and creditworthiness, and we provide loans based on that.

What initiatives are you taking to improve the skills of new entrepreneurs, especially women entrepreneurs?

We jointly run robust training programmes for entrepreneurs with various universities. We especially encourage women entrepreneurs. These training programmes are completely free and financed through our CSR fund.

We do not stop at training alone. Through our "Uddokta" programme, we create marketplace opportunities for their products. At this three-day annual fair, new entrepreneurs can showcase and sell their products.

A large portion of your investments is going into government securities. Does this reduce lending opportunities for the private sector?

Not at all. Last year, average loan growth across the banking sector was only 6%, whereas BRAC Bank achieved 17% loan growth. That means BRAC Bank lent nearly three times faster than the general market pace. This proves we are not holding back private sector lending.

Because of BRAC Bank's transparency and international-standard compliance, people and institutions deposit large amounts of money with us. If this liquidity remains idle, it creates no value for shareholders. So after lending a portion, investing the surplus in profitable sectors is a normal business process.

Globally, around 40% to 50% of the income of most international banks comes from various investments. Therefore, what BRAC Bank is doing is fully consistent with international banking practices.

Investment opportunities in Bangladesh are limited. If our capital market or bond market were stronger and more robust, banks could invest there as well. But due to fundamental weaknesses in those markets, treasury bonds and government securities have become the only reliable and safe investment path for banks.

Maintaining risk balance in a bank's portfolio is essential. In unexpected situations such as political instability or natural disasters, investment in government securities acts as an important strategy to protect the portfolio by reducing dependence on the private sector.

BRAC Bank has announced a 30% dividend this year. How does this benefit ordinary people or national development?

If you look at our sponsor structure, you will see that 46.1% of BRAC Bank is owned by BRAC, the world's largest NGO. A large portion of this dividend is directly spent through BRAC on education, healthcare and development activities in Bangladesh. In other words, our profit is reinvested in improving people's lives rather than going into individuals' pockets.

In addition, our foreign investors and public shareholders are also receiving this dividend as a logical sequence. Our purpose in giving a 15% stock dividend is to further strengthen and sustain our capital structure.

What are BRAC Bank's future plans? What is your message to depositors?

Our goal is to become an even more inclusive bank. Around 70% of Bangladesh's population is still unbanked or underserved. Economic prosperity is not possible while leaving such a large population outside the system.

Our three pillars for the future are trust, inclusion and innovation. We want to cover a larger part of Bangladesh and make our business sustainable. Depositors trust us because they receive security, convenience and better service here. We have earned that trust, and preserving it is our main goal.