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PROPER CLIENT PROFILING IS THE FIRST STEP TO IMPROVE NPLS MANAGEMENT

In the commercial district of Motijheel, the glass-walled headquarter of National Credit and Commerce (NCC) bank stands tall among the other buildings. With a floor-space larger than headquarters of any other commercial banks of the country, the NCC bank building boasts the image of a solid financial institution amidst the chaos and the dust of Motijheel.

Inside it, at the eleventh floor, sits Mosleh Uddin Ahmed, the Managing Director (MD) and the Chief Executive Officer (CEO) of the bank. It was one of his busiest days when the Fintech team reached his chamber for this interview. Mr Ahmed had just finished one meeting and was about to start another impromptu one. Yet he found time to talk with Fintech as it was scheduled earlier.

In a short span of time this engineer turned banker gave us a clear insight about how to manage a bank and most importantly how to manage the loan portfolio of a financial organization. Here is the excerpt of that interview for our Fintech readers.


Mosleh Uddin Ahmed is the incumbent Managing Director and CEO of National Credit and Commerce Bank Ltd. He joined the bank in 2015 as Additional Managing Director. Prior to his joining, Mosleh Uddin was the Additional Managing Director and Head of Business of Jamuna Bank Ltd. He has also served as Senior Executive Vice President & Area Head of Corporate Division in The City Bank Ltd.

In the process of career progression, he capitalised the opportunities to work in many other banks and also held many responsible positions like Head of Leasing Unit in Prime Bank Limited, Head of Gulshan Branch & subsequently Regional Head of Credit in State Bank of India, Dhaka.


FINTECH: You have a long illustrious career in the banking sector. Can you tell us about your journey in being the managing director of NCC Bank Ltd?

M.U Ahmed: By education, I am an engineer. I have completed my undergraduate in Electrical and Electronic Engineering (EEE) from Rajshahi University of Engineering Technology (RUET). After that, I completed my MBA from Institute of Business Administration (IBA). I started my career in the Bangladesh Commerce bank Limited (BCBL) as an engineer in 1990. After sometimes there, I found that the pure bankers were getting more importance in bank than the engineers. So I decided to opt for being a pure banker than just an ‘engineer’ in the bank.

With that in mind, in 1995, I joined the Prime Bank as a pure banker. While I was working in the Prime Bank, I saw an advertisement in the State Bank of India. I wanted to work in a foreign bank so I applied there. I got the job. In the State Bank of India’s Bangladesh operation, I had reached the position of regional credit head. I was also the head of its main branch and Gulshan Branch.

After working in the State Bank of India for seven and half years, I got an offer from Mr Mahmood Sattar. He was the CEO of Eastern Bank Ltd and was just about to join the City Bank as its CEO. He wanted me in his senior executive management there. I took his offer and I joined the City Bank. I spent about five years in the City Bank. Then I moved to Jamuna Bank as its Deputy Managing Director (DMD) in 2012. In 2014, I was promoted as the Additional Managing Director (AMD) of the Jamuna Bank. One year later, I moved to NCC Bank as its AMD. Finally, in July this year, I was made the MD of the NCC Bank.

FINTECH: As a banker of nearly three decades, do you think the commercial banks of the country are on the right tracks?

M.U Ahmed: I believe the private commercial banks have huge contribution in the growth of Bangladesh’s economy. The economic developments in Bangladesh got its impetus since 1983, when the first generation of commercial banks started operating here. Before that, getting a loan from the state owned banks for starting an industry was a tough and time consuming task. A number of proposals for entrepreneurships used to get stuck in the red tape. But because of the advent of the private commercial banks, this scenario had changed.

The banking sector had also achieved considerable success due to the reforms in the 1990s, 2000s and afterwards. However, the sector will have to prepare for the next generation of global regulatory framework and meet emerging clients’ needs. In the coming days, the banking industry will have to achieve the ability to absorb shocks arising from financial and economic stress, improve risk management and governance, and strengthen banks’ transparency and disclosures. And if the sector has to play the larger role of contributing towards a stable and sound macroeconomic situation, the banking sector has to go through the painful path of stricter policy and legal measures.

FINTECH: A number of banks in Bangladesh are struggling with non-performing loans (NPL). Why do you think this is happening?

M.U Ahmed: As per data from the Bangladesh Bank (BB), the volume of non-performing loans (NPL) jumped by more than 21 per cent to Tk 621.72 billion as on December 31 last year from Tk 513.71 billion (year-on-year). As a result, the BB issued warning at a meeting with 20 banks on their loan recovery positions. The BB’s move came against the backdrop of poor recovery of both classified and written-off loans during the October-December quarter of last year. During the period under review, all 57 scheduled banks recovered Tk 33.86 billion, which was only 5.15 per cent of NPLs amounting to Tk 658.08 billion as on September 30, 2016. So, this is clearly a critical issue.

I think several factors are playing their roles in creating a non-performing loan. Theoretically, before and during the execution of a loan agreement, a bank should evaluate any potential risk that may cause the borrower to default on its loan obligation. These risks include the ability of the borrower to repay the loan, and the validity and the enforceability of the guarantee. Based on the analysis of the bank, and the evaluation of the potential risks, it will decide whether to issue the loan and what conditions and protection measures should be stipulated in the loan agreement.

Unfortunately, many of the banks don’t take this tested theoretical approach. I would say, this is our lacking as banking professionals. As bankers, we have the duty of scrutinizing the merit of a loan proposal and the business prospect of new entrepreneurship. The bankers need to sanction loan according to the merit of the business. If you sanction long term loan for a business which needs continuous loan, then it’s your fault as a banker. It is in fact the duty of the banker who works in the credit section to pinpoint the types of loan that s/he should sanction against each type of business. There lies the main challenge for him/her as a professional.

Analyzing and ensuring the flow of working capital for a business is also very important for banker. Even a business that has hundreds of crores Taka in fixed assets will quickly find itself in bankruptcy court if it can’t pay its monthly bills. Under the best of circumstances, poor working capital leads to financial pressure on a company, increased borrowing, and late payments to creditor – and finally a bad loan.

I think in most of our commercial banks, the bankers have opted for providing generalized long term loans and project loans. I haven’t seen the practice of providing working capital loans even though that’s the best type of loan for most of the short and medium scale entrepreneurs in Bangladesh.

FINTECH: What is working capital loan? Why it is suited for Bangladeshi business?

M.U Ahmed: A working capital loan is a specialized loan type that is granted to businesses and designed to meet the everyday financial needs of running a business. Typically working capital loans are not used to purchase assets or for long term financing, it is a short term business financing option offered by lenders.

Applying for a typical business or personal loan can take up a lot of your valuable time, and may not end in approval. What’s the point of going through excessive paperwork, a lengthy approval process, putting up collateral, personally guaranteeing the loan, making fixed monthly payments and having restrictions on how you use the money if your request is just going to get denied? A working capital loan is a great way to get money fast, and without the hassles associated with a traditional bank loan. These loans allow borrowers to access money almost immediately, usually within a week after the application is accepted.

You have to understand that banks and lenders have few if any restrictions on how you use the money. They just want you to use the money to maintain your operations or to do things that will increase your opportunities for revenue. That works out well, because as a smart business owner, that is exactly what you want to do with it too.

FINTECH: What is the NPL of the NCC Bank?

M.U Ahmed: Our current NPL is 5.42%. The size of our total loan portfolio is 14,500 crore now. Just two year ago, when I joined the NCC Bank, we had a NPL of 7.58%. So we are on the tract of reducing it. We have the target of making it less than 5% by the year ends.

FINTECH: What can commercial banks do to reduce the NPL?

M.U Ahmed: I think proper Client profiling is the first step to improve NPLs management. Better data means better risk taking and client profiling. The banks have to realize that by combining information on financial assets and their financial and consumption behaviors, they can help to balance a high level of industrialization within a pre-defined set of actions for low-value clients and a bespoken approach for high-value ones, reducing costs and time to recovery.

Another important task that the bankers can do to avoid NPL is to conduct proper follow up and supervision of the credit provided. Banks are financing large number of borrowers from different sectors of the economy and consequently the supervision of bank credit becomes more challenging than it was before. But banks should follow-up to ensure that the bank credit is used for the purpose it has been sanctioned for, to keep a close watch in the borrower’s activity and particularly to see if the project has been started in time, and to evaluate the performance of the unit in terms of production sales, profit etc.

And finally, if all these efforts go in vain, then there is no option but to go for litigation. I personally believe that litigation is for bringing the borrower in the negotiation table. In a country like Bangladesh, it’s very hard to complete the case procedures and retrieve or encash money from the properties or collateral. So, attempts should better be taken by the banks to bring the borrowers in the negotiation table so that both parties can have better exit from the unwanted partnership.

FINTECH: What is the size of your SME loan portfolio? Do you have any plan to increase its size?

M.U Ahmed: Any loan amounting less than Tk one crore is SME loan for us. Our SME loan portfolio is about Tk 5,000 crore. Our recovery rate in the SME loan portfolio is very good. The main problem with the SME sector is that most of the borrowers here don’t have any formal data. Often, SMEs don’t maintain their accounts properly or audit their financial statements. They don’t have proper documentation for contracts and invoices. This significantly increases the risk due to incomplete data. They often run good businesses, it’s just that their financial accounts are sometimes not complete enough to justify a loan and that’s the problem we face as bankers about the SME.

Besides, because of increased regulatory measures, banks have had to tighten up their standards and be extra-cautious about the risk in their portfolios. You have to understand that, they are making these loans with my money, your money, and your neighbor’s money. Hence the reason banks have to be so cautious. Unfortunately, small businesses are inherently riskier than their larger counterparts, which make banks think twice before extending them credit.

Having said that, I believe we have strong prospect in the SME sector. This is because about 66% of our population is young and a significant portion of them are educated youth. Our job market cannot cater the need for their job placement so there is no option for them but to go for entrepreneurship. I think these young entrepreneurs should be provided with proper training about running a business and maintain financial data. This makes the tasks of both the parties-lenders and borrowers- a bit easier.

FINTECH: The banking industry is going to face severe disruption because of automation. Do you think the Bangladeshi banks are ready to tackle that?

M.U Ahmed: In Bangladesh, we are still stuck in the traditional way of banking. Even our neighboring India is way ahead of us in terms of technological adaptation in the banking sector. The local commercial banks of the country however have huge aspirations to reach into the international standard. And I believe to achieve that there is no option but to go for automation. I think when banks here start using the latest technology to leverage their client data, we may see a different type of banking operation with services going beyond traditional banking business. ■

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