The banking sector is fully capable of implementing the government-declared financial stimulus packages despite its own pre-Covid-19 challenges, a top leader of the banking community has said.
"Banking sector is aligned and involved from the beginning of the government's effort to restart the economy from COVID-19 fallout," Ali Reza Iftekhar, chairman of the Association of Bankers, Bangladesh (ABB), told the FE in an exclusive interview recently.
He admitted that the sector has its own pre-COVID challenges, but the banking industry is fully capable of executing the stimulus packages.
Prime Minister Sheikh Hasina has so far announced 19 stimulus packages worth Tk 1.03 trillion to offset the impacts of the pandemic on various sectors.
The packages, which are 3.7 per cent of the country's gross domestic product (GDP), are now being executed under the supervision of the central bank and the finance ministry.
Around 80 per cent of the packages are being implemented through banking channels, according to Mr Iftekhar, also managing director and CEO of Eastern Bank Limited.
"Banks will have to address credit risk properly and at the same time full collection effort must be there," he said on a note of caution.
The senior banker expressed optimism about mitigating a lot of the adverse effects if the banks disburse loans through 'bankers-client' relationships and keep up the monitoring efforts properly.
He stressed boosting efforts on recovery more than any other time, but at the same time relationship managers need to stay in touch with customers at all times.
"Post-disbursement monitoring must be kept on, through this mechanism we can keep our assets portfolio healthy and arrest the forward flow of non-performing loans," Mr Iftekhar noted.
About liquidity management in near future, the CEO predicts credit losses due to the cash flow problem, business slowdown and order cancellation arising out of the pandemic.
"We cannot be sure of the end-date of this global pandemic but we have to move along with the new normal," he explained.
The ABB chief further said that the ongoing crisis has rubbed salt into the wounds for the sector.
He advised that banks collect low-cost deposits for offsetting the adverse impact of COVID-19 and other challenges facing the sector.
The key task ahead is to effectively manage cash, leverage on digital platform, promote mobile app-based banking and enhance digital channels to properly handle payment and collection.
He also called for more collaboration with mobile financial services and micro-finance institutions will certainly lead to lower the cost of deposits.
"We need surplus funds of state-owned enterprises at 6.0 per cent in line with the ministry's instructions, although the banks are getting enough liquidity support from Bangladesh Bank to help implement the packages."
Mr Iftekhar has also sought a rightful share of development and revenue budget funds within private commercial banks (PCBs).
The ministry had already allowed state entities to deposit 50 per cent of their funds with PCBs, up from the earlier ceiling of 25 per cent, at 6.0 per cent interest rate.
"We have to remember the plight of marginal depositors. If their returns fall below the inflation rate, they will suffer the most," the senior banker added.
The senior banker agreed that classified loans are still the number-one challenge in Bangladesh.
"First we need to establish an independent credit risk management team across all banks and credit facilities that have to be administered as per the borrowers' credit worthiness," he said in reply to another query.
"We can try off the court settlement; our money loan court has to be up to the speed to dispose of the loan cases at a faster pace."
"Offloading toxic assets and forming an asset management company is an option. It has been tried in some other countries, but we need to do a lot of study on this, may need to have a separate legislation."
On strengthening corporate governance, particularly in PCBs, the ABB chief believes a lot need to be done to strengthen corporate governance in banking.
"It's a journey and I believe if all the stakeholders like BB, board of directors, senior management and all employees of the banks have to work in unison to create a governance culture," he explained.
Mr Iftekhar also said the ABB is in conversation with all stakeholders to establish that culture.
Regarding formation on an independent banking commission, he said existing legislations are adequate to address any banking issues.
"It's only a matter of implementation. Although there have been a lot of talks about establishing an independent banking commission and banking reform commission," he explained.
Mr Iftekhar also emphasised developing a vibrant bond market to provide short- and long-term financing at lower costs to investors to reduce reliance on banks for capital financing needs of potential investors.
"Without a sound debt and equity market, it's not possible to develop a strong and resilient financial market," the CEO said while explaining the necessity of a vibrant bond market.
He also recommended establishing a separate trading platform for fixed-income securities, appropriate legal framework, creating awareness of investors and safeguarding investors' confidence and interest.
Local rating agencies need to improve their standard and adequate supply of quality debt instrument to the market for a vibrant bond market.
About EBL business plan, the CEO said: "We've presented a roadmap called Vision-2021 to our board of directors that includes a tech map as EBL would like to see itself as a financial superstore with a strong digital banking platform."
All management teams are working for that vision that would be reset for the next year, he added.
EBL has a strong footing on its capital base, he said, adding that they have enough buffers to withstand minor to major shocks.
"We've strong liquidity, best asset quality, skilled human capital and adopted international best practices to maintain and manage our balance sheet healthy."
"In addition to that, we have a board that is forward looking and we get prudent guidance from the board all the time. I would say that is the beauty of our board," the CEO explained.
He said, "As we are emerging from the lockdown situation, I am pretty confident we will be able to continue our journey as per our Vision-2021."
A visionary banker and a dynamic leader, Mr Iftekhar is an ardent promoter of the concept of sustainable development.
As the EBL leader, he has successfully introduced international best practices and ethical banking, and transformed the organisation into the most valuable financial brand in Bangladesh.