Banking sector will face tight liquidity soon amid high government borrowing targets as well as private sector demand and banks have to compromise their profit to maintain liquidity, said Md Ahsan-uz Zaman, managing director of Midland Bank.
In an interview with The Business Standard,, Zaman said banks will have to increase deposit rate which will reduce the spread as lending rate is fixed. As a result, profitability will come under pressure.
Zaman, who has been with the bank for eight years, shared his experience on how the bank maintained conservative banking approach and grew with a clean image.
Since its inception, fourth generation Midland Bank focused on digital banking instead of expanding physical footprint which helped the lender to maintain sustainable growth.
Now, when most big banks are in the process of digital transformation, Midland, despite being one of the smallest banks in the industry, is ahead in many digital service indicators due to early adoption of the digital concept, said Zaman.
Here are some excerpts from the interview:
Midland started its journey in 2013. How was the journey in the last 9 years?
I joined the bank one year after it started operation. My experience in short is very fulfilling, I am very satisfied. Opportunity to build an organisation with an exceptional business model based on ideals and morality seldom comes. Banking in our country is very traditional. Most banks provide somewhat similar banking services. Our priority is customer service.
Talking about differences with other banks, he said, "We decided we will not open any branch without ATM booth facility. At the same time, we decided to launch internet banking since the early days whether customers use the service or not. From that concept, we were able to provide our customers with these services.
Later we introduced 24/7 call centres to solve customer problems. Customers can talk to us any time, including holidays. That's why we say, we never sleep. When we introduced this service, many third generation banks lagged behind.
We decided at the beginning that we would not go everywhere overnight, we would take it slow. So, we started our journey with a limited number of branches. So far we have only 35 branches, most of them in rural areas. In addition, we now have 150 distribution points, 15 sub-branches and 100 agent banking centres.
Many ask if we really need so many banks. I would say that despite having all the banks, a massive number of the population is out of banking services. With this in mind, we are going to places where there is a lack of banking services. That is why our branches are far from urban areas.
The idea of digital banking is becoming popular now. But we started the service of opening a digital savings account and digital expatriate savings account through the website four years ago. At that time, if we had a branch within 25 kilometres of the customer's location, our representative would go directly and activate the account after verification. In case of expatriates, they were requested to come to our branch at least once and get acquainted. According to the latest instructions of Bangladesh Bank, it is now done electronically. Currently you can also open an FDR or monthly savings scheme through our website.
Bangladesh Bank launched NPSB service for the first time with 6 banks including new generation Midland Bank. At present 23/24 banks have launched this service.
We have more growth in opening accounts through websites than in branches. Although the deposit in these accounts is less, it is increasing. In addition, customers are more interested in transacting online than coming to the branch.
We have had to invest a lot to build digital banking from the beginning. Bangladesh Bank has been working for two years to make everything including banks and MFS inter-operable. It is considering launching a pilot project with 14 companies including our bank. We are on this platform because of our capabilities.
Digital Bank is coming next. The Finance Minister has also spoken about introducing it in his budget session. But these banks will not have a physical presence. We want to run a bank, we want to have a physical presence, but it will not be everywhere.
Which sector Midland focuses more for business?
We give priority to the economic driving forces of the country. We want to be the bank of the common man. Mandate of all our branches is individual, small and SME clients. We also have a focus on agriculture. However, 85% of our portfolio is corporate banking. This is our long term focus. We are a commercial organisation and we have to make a profit. If we focus entirely on the individual, small and SME sector, robust profit will not come. Because, I will be compared with other banks and I have to pay profit to my shareholders. So, by default, I have to focus on the corporate sector.
Banking sector deposit growth has dropped drastically. Growth in March was 9%, down from 13-14% in the same period last year. All banks are facing it. Are you taking it as a challenge or how are you managing the liquidity crisis in the market?
We are looking at it in two ways. We pretty much anticipated it (tightness in the liquidity market). However, we did not think that it would be this much. We had that perception when we started planning for the new year.
Although our deposit growth is tight compared to the end of the year, our loans have seen a de-growth. This is because we do not want to continue with the premium rates. The deposit we are holding is costly. We have consciously borne that cost.
We have taken this step to increase the deposit rate. We had to subsidise to maintain the deposit, we had to give up profits.
Our lending rate is increasing. It has increased in almost all the banks.
The cost of money is growing. Call money rate, bills, paper etc. are increasing. Rate of 10-year government bonds has gone above 8. Call Money Rate is running at 5%. So, the cost of money has gone up. The tightness is reflected on the rates. I am not able to transfer it to the end user; towards the borrower.
The government has now fixed a high borrowing target. Demand is also very high in the private sector. Money is already tight, rates are rising. What kind of challenges do you see in the future?
Liquidity Will Become tighter. Whether we are ready to manage it or not, we have to face the reality. Our profitability will come under pressure.
Foreign currency is available as per the demand when the price increases in the foreign exchange market. Price is going up and is being tried to be controlled or restricted.
With our balance sheet strength, we can face this situation. Performance Ratio (return on equity, return on assets) will come under pressure. However, we place more importance on liquidity management than returns. We maintain liquidity even if profit is sacrificed. Because, the depositors do not see how much profit the bank is making. They see if his money is safe.
Where do you want to see the bank in the next 5 years?
We currently have 1.70 lakh customers. We want to see exponential growth there. We want to double the number of existing customers in the next 2/3 years. Also, if our customers use two products, we want them to use four to five products. We want to get several generations of a family as customers.