All banks should get ready to face the default loan wave by keeping heavy provisioning instead of declaring high profits
The banking sector will be under serious pressure of default loans in the new year. This pressure has already been there for several years, but banks did not feel it in the just-concluded year thanks to regulatory forbearance.
The willingness and ability of big business clients to repay loans will be understood soon when the temporary forbearance is over. The default loan scenario will be clear by the second half of next year.
As a precautionary measure, Brac Bank has maintained high debt provisioning to face the default loan wave.
The Bangladesh Bank has already issued a circular, mandating an additional 1% provisioning against unclassified loans, which is a good move for banks.
This conservative approach is needed because it still cannot be predicted how severe the default loan pressure will be in the next one year or two.
All banks should get ready to face the default loan wave by keeping heavy provisioning instead of declaring high profits. Brac Bank is fully ready to fight upcoming difficulties as we have 100% corporate governance, and 44% of shares of the bank are owned by foreign shareholders.
Banking operations will entirely change next year as the net income margin has declined significantly due to low interest rate. Moreover, in the new normal situation, banks cannot work in a traditional manner. They will have to be much more effective and efficient to survive.
Banks will have to bring new products in line with customer demand. There is a huge gap between banks' products and services and customers' requirements.
Customers' demands and requirements have changed. Now, they want digital solutions. So, banks that will fail to meet the new demands will not survive in the market.
Selim RF Hussain, managing director of Brac Bank