'Brac Bank plans to double its business by 2026'

Brac Bank is the sector leader in the country's banking industry with 50% of total loans to the small and medium enterprises (SME) sector. Currently, the bank's loan portfolio is over Tk41,000 crore. Besides, the bank has a 2.2% market share in the industry. 

Brac Bank plans to double its business in the next four years. It has a target to increase its loan portfolio to Tk70,000-80,000 crore and a market share of 4.5% by the end of 2026.

Selim RF Hussain, chairman of the Association of Bankers Bangladesh (ABB) and managing director and CEO of Brac Bank, discusses the current state of the country's local and foreign currency markets, the bank's working methods, and future plans in an interview with The Business Standard.

How is Brac Bank doing in the aftermath of the pandemic and the ongoing Russia-Ukraine crisis? What kind of innovations have you implemented to survive these crises?

Brac Bank is now much bigger than it was three years ago when the pandemic started in 2020. It is not just that our business has grown, our balance sheet has also expanded. 

However, it is not that the number of customers has increased much. But our overall reputation and profile have improved. We have improved our credit rating, international credit rating, and local credit.

Our economy has gone through very difficult times in the last three years. But we were able to take the opportunity and used technology in various ways in banking. By changing our strategies and plans, we have been able to adapt to the demands of the changing environment. 

We have been able to grow very significantly. Brac Bank's deposit growth in 2022 was 24%, compared to 7% for the banking industry. When customer loans grew at an average of 13% in the sector, Brac Bank enjoyed a 28% growth. 

This reflects our success in the changing environment.

What do you think are the reasons behind the good performance in the last three years?

I think the biggest change has been the investment in technology. 

The way we have invested in technology for the past four years and the digital transformation of the bank is probably the single largest reason why Brac Bank has persevered. 

There was not much talk about digital innovation or digital service in Bangladesh three to four years ago. However, consumer attitudes and behaviour have completely changed since then. Now you will see that everyone prefers digital services.

Shopping, ordering in restaurants, or paying bills — everything is done through digital apps and mobile phones have become the most important companions in our lives.

We are seeing a reflection of the investments we started making in technology in the last three years. In January 2020, Brac Bank accounted for 17% of digital transactions, which is about 80% now. 

The future is all about technology.

Brac Bank is known as the market leader in SME banking. How challenging was SME banking in the last three years, also with the lending rate cap? 

More than 50% of our entire loan portfolio is invested in the SME sector. About 30-32% of the remaining loans are in the corporate commercial sector and 17-18% in the retail sector.

Now the question may be why our focus is on SMEs. 

This is because Brac Bank is very different from other banks. This bank was created in 2001 by Sir Fazle Hasan Abed. Our focus was on the missing middle sector, where the banking sector of Bangladesh is not very welcoming.

He [Fazle Hasan Abed] wanted us to invest in SMEs to show that this sector is also profitable and a bank can do well by investing here.

We believe that investment in the SME sector is sustainable and makes the biggest contribution to our country's economy or society. If I can give Tk1,000 crore to a big corporation, how much does that loan contribute to the country or economy?

But I can give that money to small entrepreneurs. That is why we focus more on that side. We have disbursed loans worth over Tk19,000 crore to around 442,000 SME customers.

Of these, small loans account for about 85%.

When the lending rate cap was introduced in April 2020, there was a huge pressure and the portfolio naturally became loss-making. But we have since launched various studies on how to improve the portfolio, increase productivity, and make it sustainable. 

By the grace of Allah, we have done that and now the portfolio is a profitable gain.

Besides, the way we are increasing the use of technology, next year it will become even more profitable going forward. Along with this, we have launched many new products and services. Also, we are trying to make the entire lending process easier, shorter, and faster. 

Five years ago it took about three weeks to clear a loan, today it has come down to five days. Now we are trying to bring it down to 15 minutes. We want the customer to apply for a loan through a mobile phone and get an approval decision within 2-3 minutes through the system.

If approved, the loan can be accepted with a biometric signature or his pin number and the loan will be disbursed automatically. If not approved, bank staff will visit the customer and try to activate the loan. If we can reduce the time, we can give more loans and make the portfolio more profitable. 

Everyone thinks lending to the SME sector is risky. Whereas our bank's NPL (non-performing loans) in this sector is below 2.8%, which is much lower than the NPL rate in the banking sector. 

Customers of the SME sector do not easily become wilful defaulters. This is not true for large customers, many of whom default willfully. They even file cases against the lender. 

Youths prefer Brac Bank over other banks in terms of employment. How did you build this reputation?

The main reason is good governance. Sir Fazle Hasan Abed brought good governance, discipline, and transparency to the bank from the beginning and he insisted on running the bank in this way. No businessmen own this bank as 46% of its shareholder is NGO Brac.

Our five board directors are independent. Many committee chairpersons including our board are independent directors. The way they have empowered the management, there are not many examples in Bangladesh. These are the reasons why we have done so well today.

Brac Bank has a truly corporate environment, which is rare in the banking industry of Bangladesh. Besides, the bank is the standard or role model in ethical banking.

How challenging is the NPL situation in the banking sector?

Indeed, the biggest challenge in our banking sector is the huge NPL. Beyond the amount of NPLs that is officially shown, many loans may remain under assessment. 

According to the World Bank report, only Sri Lanka in South Asia is worse than us. In the last five to seven years, there has been a trend of non-repayment of loans.

We can get out of this situation. I think this is not only a problem of the banking sector; the Bangladesh Bank alone cannot solve it. To deal with it, a strong legal framework should be brought along with an economic and social one.

We need more courts and court officials. Judges need to get more training on the financial sector because we have thousands of pending cases. It often takes up to 10-15 years to settle a case. However, a negligible amount is recovered after the settlement. So much to do here.

But those who are influential defaulters, how do we stop or prevent them?

I think overall we have a social responsibility, it cannot be done by any bank or court alone. Here we need moral commitment.

Last year, most of the banks made good profits despite various crises. Will these profits sustain in the coming years? What are the challenges?

Banking profit is a funny thing. We need to understand how much of this profit is realised profit. 

The banking sector is the heartbeat of the economy. Likewise, it is heavily dependent upon certain rules and regulations, legal and accounting framework.

For example, do my financial statements reflect a true and fair reflection of my financial position if I gave a bad loan? 

In many cases, borrowers are taking deferrals, meaning I will repay the loan after five to seven years. All in all, the rules of provisioning classification of loans in our country are very relaxed. They have been drastically relaxed, especially in the last four years, which deviates a lot from international standards. 

The central bank governor has told us that gradually, we have a plan to move towards international standards. We need it very much because foreign banks or partners do not take our banks or our financial position very seriously.

As a result, our dealings with them are much more expensive than, for example, banks in Pakistan. But the economy of Pakistan is much weaker than our country. This is due to a bad reputation and lack of corporate governance.

What is the target of Brac Bank in the coming years?

We set a target of four years at the end of 2021. We decided that the way our bank has progressed in the last five to six years in terms of creating infrastructure, including manpower, technology, and products, we have to take it further.

I mean, maybe we were running in second or third gear, now we will take it to fourth or fifth gear. Our plan is to double our entire business and portfolio in the next four years. Our target is to increase our market share from 2.2% to 4.5%.

Besides, we will take our loan portfolio to Tk70,000-80,000 crore by 2026. Then we will take up the four-year plan again.

For the last year, there has been a currency and dollar crisis in our country. Will it ease?

Bangladesh recovered well from the crisis caused by the pandemic around February or March last year. Later, the distribution chain was severely disrupted due to the lockdown in our big trading partner China. Again, due to the Russia-Ukraine war, commodity prices started to rise. The cost of shipping, oil and gas has gone up a lot. Inflation began to rise in the US. Europe and the US increased interest rates to prevent inflation.

In all, there has been a huge pressure on developing countries like us. As we are an import dependent country, the price of goods started to increase in our country, inflation increased.

This was triggered by a depreciation of the taka of around 25% in the last one year. A perfect storm has come upon us, much of it external. The last six months of 2022 have been tough times, especially for foreign currencies.

As the central bank sold dollars from the reserve, a lot of money went from the market to the central bank. Now the situation has improved very significantly. We must give great credit to the central bank. The way they have managed it in the last five to six months, the way they have controlled the import, minimised over-invoicing and under-invoicing, it is extremely praiseworthy.

Our trade deficit has come down. So the situation is much better. Foreign banks are now getting a relief about Bangladesh, our deferred payments have come down a lot. 

The central bank governor said that they will move towards a market-based single exchange rate within a couple of months. In this case, the initial exchange rate may go up a little, but it will be normal in a few months.

It will also open the interbank market. This year has been challenging but the second half will be a lot better.

How is the life of bankers? Do you have any suggestions for the youths who want to enter banking? 

The life of a managing director is very stressful, no doubt about it. It's a tough job. Only 10% of a bank is its own capital, the rest is customers' money. As a result, the amount of responsibility here is very high. Because the impact on the economy is thousand times more if a bank goes bankrupt than any other institution.

So if you think that you want a stress-free job then banking is not for you.

Again, I think on the other hand, it is an exciting role. It is an opportunity for us to contribute to the national economy. Because, compared to other countries, our economy depends on banks. It has to be made stronger, bigger, efficient and technology-oriented for the future.

It is not possible to become a big country with a weak banking sector.

Brac Bank is the sector leader in the country's banking industry with 50% of total loans to the small and medium enterprises (SME) sector. Currently, the bank's loan portfolio is over Tk41,000 crore. Besides, the bank has a 2.2% market share in the industry. 

Brac Bank plans to double its business in the next four years. It has a target to increase its loan portfolio to Tk70,000-80,000 crore and a market share of 4.5% by the end of 2026.

Selim RF Hussain, chairman of the Association of Bankers Bangladesh (ABB) and managing director and CEO of Brac Bank, discusses the current state of the country's local and foreign currency markets, the bank's working methods, and future plans in an interview with The Business Standard.

How is Brac Bank doing in the aftermath of the pandemic and the ongoing Russia-Ukraine crisis? What kind of innovations have you implemented to survive these crises?

Brac Bank is now much bigger than it was three years ago when the pandemic started in 2020. It is not just that our business has grown, our balance sheet has also expanded. 

However, it is not that the number of customers has increased much. But our overall reputation and profile have improved. We have improved our credit rating, international credit rating, and local credit.

Our economy has gone through very difficult times in the last three years. But we were able to take the opportunity and used technology in various ways in banking. By changing our strategies and plans, we have been able to adapt to the demands of the changing environment. 

We have been able to grow very significantly. Brac Bank's deposit growth in 2022 was 24%, compared to 7% for the banking industry. When customer loans grew at an average of 13% in the sector, Brac Bank enjoyed a 28% growth. 

This reflects our success in the changing environment.

What do you think are the reasons behind the good performance in the last three years?

I think the biggest change has been the investment in technology. 

The way we have invested in technology for the past four years and the digital transformation of the bank is probably the single largest reason why Brac Bank has persevered. 

There was not much talk about digital innovation or digital service in Bangladesh three to four years ago. However, consumer attitudes and behaviour have completely changed since then. Now you will see that everyone prefers digital services.

Shopping, ordering in restaurants, or paying bills — everything is done through digital apps and mobile phones have become the most important companions in our lives.

We are seeing a reflection of the investments we started making in technology in the last three years. In January 2020, Brac Bank accounted for 17% of digital transactions, which is about 80% now. 

The future is all about technology.

Brac Bank is known as the market leader in SME banking. How challenging was SME banking in the last three years, also with the lending rate cap? 

More than 50% of our entire loan portfolio is invested in the SME sector. About 30-32% of the remaining loans are in the corporate commercial sector and 17-18% in the retail sector.

Now the question may be why our focus is on SMEs. 

This is because Brac Bank is very different from other banks. This bank was created in 2001 by Sir Fazle Hasan Abed. Our focus was on the missing middle sector, where the banking sector of Bangladesh is not very welcoming.

He [Fazle Hasan Abed] wanted us to invest in SMEs to show that this sector is also profitable and a bank can do well by investing here.

We believe that investment in the SME sector is sustainable and makes the biggest contribution to our country's economy or society. If I can give Tk1,000 crore to a big corporation, how much does that loan contribute to the country or economy?

But I can give that money to small entrepreneurs. That is why we focus more on that side. We have disbursed loans worth over Tk19,000 crore to around 442,000 SME customers.

Of these, small loans account for about 85%.

When the lending rate cap was introduced in April 2020, there was a huge pressure and the portfolio naturally became loss-making. But we have since launched various studies on how to improve the portfolio, increase productivity, and make it sustainable. 

By the grace of Allah, we have done that and now the portfolio is a profitable gain.

Besides, the way we are increasing the use of technology, next year it will become even more profitable going forward. Along with this, we have launched many new products and services. Also, we are trying to make the entire lending process easier, shorter, and faster. 

Five years ago it took about three weeks to clear a loan, today it has come down to five days. Now we are trying to bring it down to 15 minutes. We want the customer to apply for a loan through a mobile phone and get an approval decision within 2-3 minutes through the system.

If approved, the loan can be accepted with a biometric signature or his pin number and the loan will be disbursed automatically. If not approved, bank staff will visit the customer and try to activate the loan. If we can reduce the time, we can give more loans and make the portfolio more profitable. 

Everyone thinks lending to the SME sector is risky. Whereas our bank's NPL (non-performing loans) in this sector is below 2.8%, which is much lower than the NPL rate in the banking sector. 

Customers of the SME sector do not easily become wilful defaulters. This is not true for large customers, many of whom default willfully. They even file cases against the lender. 

Youths prefer Brac Bank over other banks in terms of employment. How did you build this reputation?

The main reason is good governance. Sir Fazle Hasan Abed brought good governance, discipline, and transparency to the bank from the beginning and he insisted on running the bank in this way. No businessmen own this bank as 46% of its shareholder is NGO Brac.

Our five board directors are independent. Many committee chairpersons including our board are independent directors. The way they have empowered the management, there are not many examples in Bangladesh. These are the reasons why we have done so well today.

Brac Bank has a truly corporate environment, which is rare in the banking industry of Bangladesh. Besides, the bank is the standard or role model in ethical banking.

How challenging is the NPL situation in the banking sector?

Indeed, the biggest challenge in our banking sector is the huge NPL. Beyond the amount of NPLs that is officially shown, many loans may remain under assessment. 

According to the World Bank report, only Sri Lanka in South Asia is worse than us. In the last five to seven years, there has been a trend of non-repayment of loans.

We can get out of this situation. I think this is not only a problem of the banking sector; the Bangladesh Bank alone cannot solve it. To deal with it, a strong legal framework should be brought along with an economic and social one.

We need more courts and court officials. Judges need to get more training on the financial sector because we have thousands of pending cases. It often takes up to 10-15 years to settle a case. However, a negligible amount is recovered after the settlement. So much to do here.

But those who are influential defaulters, how do we stop or prevent them?

I think overall we have a social responsibility, it cannot be done by any bank or court alone. Here we need moral commitment.

Last year, most of the banks made good profits despite various crises. Will these profits sustain in the coming years? What are the challenges?

Banking profit is a funny thing. We need to understand how much of this profit is realised profit. 

The banking sector is the heartbeat of the economy. Likewise, it is heavily dependent upon certain rules and regulations, legal and accounting framework.

For example, do my financial statements reflect a true and fair reflection of my financial position if I gave a bad loan? 

In many cases, borrowers are taking deferrals, meaning I will repay the loan after five to seven years. All in all, the rules of provisioning classification of loans in our country are very relaxed. They have been drastically relaxed, especially in the last four years, which deviates a lot from international standards. 

The central bank governor has told us that gradually, we have a plan to move towards international standards. We need it very much because foreign banks or partners do not take our banks or our financial position very seriously.

As a result, our dealings with them are much more expensive than, for example, banks in Pakistan. But the economy of Pakistan is much weaker than our country. This is due to a bad reputation and lack of corporate governance.

What is the target of Brac Bank in the coming years?

We set a target of four years at the end of 2021. We decided that the way our bank has progressed in the last five to six years in terms of creating infrastructure, including manpower, technology, and products, we have to take it further.

I mean, maybe we were running in second or third gear, now we will take it to fourth or fifth gear. Our plan is to double our entire business and portfolio in the next four years. Our target is to increase our market share from 2.2% to 4.5%.

Besides, we will take our loan portfolio to Tk70,000-80,000 crore by 2026. Then we will take up the four-year plan again.

For the last year, there has been a currency and dollar crisis in our country. Will it ease?

Bangladesh recovered well from the crisis caused by the pandemic around February or March last year. Later, the distribution chain was severely disrupted due to the lockdown in our big trading partner China. Again, due to the Russia-Ukraine war, commodity prices started to rise. The cost of shipping, oil and gas has gone up a lot. Inflation began to rise in the US. Europe and the US increased interest rates to prevent inflation.

In all, there has been a huge pressure on developing countries like us. As we are an import dependent country, the price of goods started to increase in our country, inflation increased.

This was triggered by a depreciation of the taka of around 25% in the last one year. A perfect storm has come upon us, much of it external. The last six months of 2022 have been tough times, especially for foreign currencies.

As the central bank sold dollars from the reserve, a lot of money went from the market to the central bank. Now the situation has improved very significantly. We must give great credit to the central bank. The way they have managed it in the last five to six months, the way they have controlled the import, minimised over-invoicing and under-invoicing, it is extremely praiseworthy.

Our trade deficit has come down. So the situation is much better. Foreign banks are now getting a relief about Bangladesh, our deferred payments have come down a lot. 

The central bank governor said that they will move towards a market-based single exchange rate within a couple of months. In this case, the initial exchange rate may go up a little, but it will be normal in a few months.

It will also open the interbank market. This year has been challenging but the second half will be a lot better.

How is the life of bankers? Do you have any suggestions for the youths who want to enter banking? 

The life of a managing director is very stressful, no doubt about it. It's a tough job. Only 10% of a bank is its own capital, the rest is customers' money. As a result, the amount of responsibility here is very high. Because the impact on the economy is thousand times more if a bank goes bankrupt than any other institution.

So if you think that you want a stress-free job then banking is not for you.

Again, I think on the other hand, it is an exciting role. It is an opportunity for us to contribute to the national economy. Because, compared to other countries, our economy depends on banks. It has to be made stronger, bigger, efficient and technology-oriented for the future.

It is not possible to become a big country with a weak banking sector.