Shahjalal Islami Bank Limited (SJIBL) has decided to diversify its investment portfolios focusing on small and medium enterprises (SMEs) and retail banking aiming to minimize risks, the bank's top executive has said.
"We've given special importance to SMEs, which is one of the important sectors for economic development of Bangladesh," M Shahidul Islam, managing director (MD) and chief executive officer (CEO) of SJIBL told the Financial Express (FE) in an exclusive interview recently ahead of its 20 years' anniversary.
The Shariah-based Islami bank has also given priority in short term investment to extend facility to meet the growing demand for working capital to industrial sector as well as SMEs, Mr. Islam explained.
Actually, the leading private commercial bank (PCB) is moving slowly and cautiously to ensure asset quality despite the ongoing Covid-19 pandemic, the CEO said, adding that the overall economic activities has been facing difficulties like other countries in the world due to the pandemic.
"Productions of the industry squeezed, service industry marginalized, export and import businesses affected, educational institutions remain closed due to the pandemic. Though the economy is recovering, but it is not yet back on right track and will take time," Mr. Islam, who obtained a post-graduate degree from the University of Chittagong, observed.
He also said the country's banking sector is trying to adjust the adversity with utmost positivity to overcome the challenges in the coming years.
Describing the government announced different stimulus packages and policy supports of the central bank; the senior banker said such supports have helped the banks strengthen their investment capacity particularly in the real sectors of economy.
The government has so far announced a total of 23 stimulus packages worth Tk 1.24 trillion to offset the shock of Covid-19 pandemic in various sectors of the country.
The packages, equivalent to 4.44 per cent of the country's GDP (gross domestic product), are being implemented under the supervision of the central bank and the ministry of finance.
Regarding the classified loans in the country's banking system, the CEO said the rate of non-performing loans (NPLs) is higher compared to international standards even the average of NPLs of Asian countries is lower than Bangladesh.
"It may create a significant problem in running banking operations in Bangladesh as profitability and liquidity adversely affected if the NPLs exceed the standard," Mr. Islam, a 37-year experienced commercial banker, said while replying to a query.
He also said the current NPLs situation is really a challenge for the banking sector of Bangladesh. "The banks could play a bigger role towards economic development of the country, if the default loans could be controlled in Bangladesh."
The top executive of the Shariah-based Islami bank has urged the government to introduce a separate Islamic Banking Act immediately to run the country's such banking system smoothly.
"Since, objectives, functions and operations of Islamic banks are different from conventional ones, a separate Islamic Banking Act is necessary to facilitate and promote Islamic banking system in Bangladesh," the CEO said while replying to another query.
In 2009, the Bangladesh Bank (BB), the country's central bank, introduced a guideline to manage, control and supervise the functions of Islamic banks.
The Islamic banking has been facing an excess liquidity problem since the Shariah-based Islami banks could not invest their excess funds in the government treasury bills and bonds because of the interest bearing nature of the instruments, according to the CEO.
"For this, net profit of the Shariah-based Islami banks is affected and the cost of funds is increasing gradually," he noted.
He also emphasized on developing a vibrant Islamic financial market with different Shariah compliant instruments to create a new window for investment of the Islamic banks.
"An effective Shariah compliant money and capital market will certainly play as catalyst roles to grow Islamic banking in Bangladesh," the senior banker added.
Besides, the Islamic banks are now facing serious difficulties in receiving short term funds to meet their emergency needs mainly due to the lack of inter-bank Islamic money market in Bangladesh.
In absence of a money market, SJIBL has taken conservative approach and always maintains surplus funds to meet the obligation of their customers, according to the MD. "As a consequence, profit from treasury operations by investing surplus funds for short-term basis is not possible."
He also said Malaysia introduced Islamic inter-bank money market in 2011 and Bangladesh may also share the experience for such a money market with the East Asian country.
Currently, Islamic banking dominates with almost 25 per cent share of the entire banking sector of Bangladesh but the surplus fund kept idle in absence of shariah based financial market, according to the senior banker.
"Such surplus fund could be channelized through Sukuk, a shariah compliant instrument, an effective financing option," Mr Islam said while replying to another query.
He also said Sukuk has already been rolled out which is a vital fundraising tool for the government and corporate entities also.
The senior banker also urged the central bank for taking effective measures to explore every opportunity for introduction of Shariah compliant products and formulate a regulatory framework based on the experience of other countries.
The Shariah-based bank is also working to provide better services to its customers by using the latest financial technology (FinTech).
FinTech is a new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services using smartphones or the internet.
"We've already introduced app-based internet banking -SJIBL Net and opening of e-Account -to ensure customer services anytime anywhere," the MD said while describing the bank's FinTech activities.
He also said: "Our headquarters, all branches and sub-branches are supported by a fully integrated, centralized system through an inter-connected application programming interface (API)."
SJIBL has already upgraded the existing core banking solution to enhance its operational efficiency which will lead to a better customer experience, according to the CEO.
"Since Islamic banking operation is different from conventional banking, we are reviewing the application of Fin-tech based banking in Islamic banking complying with Shariah and introducing it accordingly," he noted.
Regarding profitability, the senior banker said the profitability of the country's most of the banks has already declined as all the avenues of income adversely affected by the Covid-19 pandemic.
"Excess liquidity, lower appetite of private sector investment, slowdown of global business, possible increase of stressed accounts and above all capping of lending rate influenced profitability of the banks," Mr Islam explained.
He also said the overall scenario is not favorable, though SJIBL has given special importance to manage the balance sheet efficiently by applying all available tools to earn satisfactory operating profit.
"It is the time to sustain managing all the challenges prudently for a better future."
Before joining SJIBL, Mr Islam served United Commercial Bank (UCB) Limited as an additional managing director and provided the bank with the strategic leadership and was instrumental in strengthening and building the financial institution into a leading market player.
After completing post graduation in Management from Chittagong University, he started his banking career with National Bank Limited (NBL) as Probationary Officer in 1984.
After serving NBL for 14 years in different capacities, he joined Prime Bank Limited in 1997 and served there 11 years in different senior management positions including branch manager and Head of Credit Risk Management (CRM) Division.
He joined UCB as deputy managing director in 2008 and was elevated to the rank of additional managing director on March 01, 2011.
During his long 37 years of experience, Mr Islam has gathered vast experience in almost every key areas of banking like corporate, SME, foreign trade, consumer banking, credit risk management, syndicated finance, foreign investment, finance as well as treasury.
The senior banker has been honoured with the prestigious "Islamic Finance Personality of 2020" Award conferred by renowned UK-based financial think-tank Cambridge IFA.
This award recognizes achievements and efforts exhibited by institutions and individuals to promote and sustain the Islamic finance industry in the local and global sphere.