Finance Minister AMA Muhith said in Parliament recently citing data of the Credit Information Bureau (CIB) of the Bangladesh Bank available until June last that the number of loan defaulters stood at 230,658 in the country and the amount of classified loans exceeded Tk. 1.31 trillion (1,31,666.16 crore). A research finds that major causes of classified loans in Bangladesh are: (i) wrong assessment of credit needs and (ii) loosely monitoring the use of credit. The study also shows that these two major causes are linked to lack of ethical practices on the bankers' side and also on the businesspersons' side. In this situation, doing sustainable banking business in Bangladesh is very difficult but not impossible.
Let see how banks can boost their business in Bangladesh. For boosting the business, the banks need to define sustainability at first. In general, sustainable business means a process by which companies manage their financial, social and environmental risks, obligations and opportunities. On the other hand, we may say that sustainable banking means acquiring steady profit through banks year after year.
For boosting banking business in Bangladesh, banks need to make their employees efficient and that depends on honesty and education. In most of the cases banks are laying emphasis on education but not on honesty, although trust depends on honesty. So, banks need to make their employees real humans to achieve their goal. In some cases, organisations resort to fraud, but they expect that their employees will be honest. This is totally an impossible idea. So one needs to be honest first and teach their employees to be honest. That will be effective.
Compliance: An organisation needs to be compliant on its own without any outside intervention. Compliance will help ensure steady growth in profit and minimisation of classified loans. But at the same time, it should be careful about slowest service in the name of compliance. Employees also need to be educated about banking need, organisational objectives and compliance. For the purpose of compliance, banks can put in place an efficient Management Information System (MIS) as it ensures transparency as well as confirms responsibility.
Technologically faster and secure: For providing faster services, banks need to use the latest technology like financial technology (fintech) that is secure and cost-effective. If the technology is not easily usable, secure and cheaper, the ultimate goal of banks cannot be achieved.
Regular transaction through banking channel: If the general people regularly transact their money through the banking channel electronically more than cash transaction, a large amount of deposit will come into the banking system. It will ensure a large size of capital for a country. If the banks can ensure availability of the large size of capital, they can also invest it in government project as well as in the private sector. That will ensure a new arena of investment for banks.
Clients' cash management: Cash management is the corporate process of collecting and managing cash, as well as using it for short-term investment. It is a key component of a company's financial stability and solvency. Corporate borrowers diversify transactions for different purposes. If a bank can ensure better cash management, it also can collect deposits without paying any interest or fees as well as fees for doing such a type of job.
Advisory service: By sharing investment ideas with banks' investment professionals, clients can take benefits from banks' specialist knowledge. Clients can also get a personalised service tailored to their circumstances, investment objectives, risk threshold and expectations on projected return. In this way banks can earn fee-based income from their clients.
Small and medium enterprise financing: For a developing country like Bangladesh, banks need to work to groom entrepreneurs. For a first time, entrepreneurs have no large volume of capital, rather they have minimum capital. So, entrepreneurs need to grow up keeping abreast with international practices through SMEs (small and medium enterprises). In this case, banks need to come up with SMEs like nurturing one's own child. An SME can be the largest business giant, if they are nurtured carefully and efficiently.
Group-based housing loan: Housing is one of the basic needs of humans but banks are providing housing loans on an individual basis. In today's scenario we are observing that a single person cannot build a residential building alone, they require help of others. In this case, banks can introduce group-based housing finance that will be cost effective and viable through cash-flow.
Investment in venture capital: Capital is invested in a project in which there is a substantial element of risks, typically a new or expanding business. Banks can take such a type of risk in investment for the certain amount of total investments. It will make more profit or make loss, but it will help moot a new idea.
Finally, banks should ensure leadership from employees on the basis of work performance and make them responsible for their jobs. Without reward and responsibility one cannot work properly. Earning profit steadily year after year makes a bank sustainable and losing goodwill within a decade makes it a temporary bank. Entrepreneurs of temporary banks ultimately suffer in terms of monetary benefits as well as goodwill.
The writer is banker.
mashiur.du@gmail.com