Number one challenge for the banking sector in 2021 is the uncertainty around a prolonged Covid-19 pandemic. The whole world's economic growth now hinges on stimulus, unemployment benefit and loan repayment deferrals. As recovery and employment generation will take time, we don't know what will happen when the government's stimulus and loan deferrals are stopped. 

We are heavily dependent on readymade garment (RMG) exports. Moreover, Bangladeshi taka is in strong position against dollar now. The RMG sector may lose competitiveness with this strong position of taka. Due to global economic impact, Bangladeshi factories are running at 60-70% capacity. Retailers and foreign brands placed 30% fewer work orders for December-March 2021 season.

The second most important challenge will be how to manage non-performing loans (NPL). NPLs stood at Tk944.40 billion as of September, 2020, down by 1.74 percent from June 2020, and by 18.73 per cent from last year's. This has happened as Bangladesh Bank has redefined the classified loans. We fear that after lifting the relaxed loan classification rules, banks may be overburdened with additional Tk600 billion worth of NPLs.

The third biggest challenge will be to manage the profit margin. We are now working under interest rate capped at 9%. Big corporates with their high bargaining capacity are getting rates even below 9%. To maintain the margin, we are decreasing deposit rates. In that case, deposit may fly away from the banking sector. The current excess liquidity (approx Tk1840 billion), I fear, will be shrinking fast. Overall, due to reduced margin, new NPLs and flight of deposit, banks may face risk of insignificant profit or loss of capital.

Finally, too much regulation is another challenge. We simply don't know what's coming next from the regulators. Specially in our country the whole stimulus package is dealt by banks. As a result the whole credit risk is shouldered by banks. 

At City Bank, we are giving top priority for the safety and security of our human resources during the pandemic. We are also keeping a sharp eye on the stressed loan portfolio and on how to further reduce the cost of deposit and operating expenses. Going digital for every products and services is a good way to counter the rising cost of things. Digital solutions are inarguably cheaper.

Mashrur Arefin, Managing Director & CEO of The City Bank Limited