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There Is No Idle Money In The Market

-Faisal Mahmud

At the head office of Standard Bank in Motijheel, Mamun-Ur-Rashid, the amicable and smiling Managing Director (MD) of the bank performs an additional duty of the ‘Imam’ for the office. When I went to meet him for this interview, he was leading the ‘Zuhr’ prayer. After prayer, we sat to talk about his illustrious banking career of 34 years, the banking industry of Bangladesh and about the industry’s technological adaptation along with the time.

FINTECH: You have started your banking career in 1984 at the National Bank. Since then you have worked in six different banks. What was your main motivation behind changing
these banks in your long banking career? What are the basic differences you have seen among all these banks?

MU Rashid: First of all, I have to say that I just consider myself as banking professional and like any other true professional, organization doesn’t matter too much to me; rather the profession does. I believe, for a working professional, satisfaction about workplace is the most important factor. Another important factor is the growth within the organization because satisfaction alone cannot suffice. If a person finds that he has satisfaction with a particular organization but the growth there is not good, then s/he might find it necessary to leave the organization.

When I started my career, I had these two goals-to have satisfaction and to have growth in my career. I was driven by those goals. That’s why I have always tried to work in the best organizations in the sector.

National Bank was one of the first private banks of the country and after it started its operation, it had been able to create a goodwill and reputation in the banking sector. I worked there for more than 10 years. But when I felt that my growth there had been stagnated at some point, I started looking for other avenues. Then I went to work with the National Credit and Commerce (NCC) bank. It just got its banking license at that time and started its journey. I worked there for six and half years. When I joined there, it had only 18 branches but when I left the bank, it had established more than 60 branches across the country.

After that I got an opportunity to work with Prime Bank. I worked there for another six and half years. I got three promotions there in six and half years. I joined there as Vice President and left the bank as the senior executive vice president (SEVP) which is the highest position at the executive level. After that in 2008, I got an offer to join United Commercial Bank Limited (UCBL) as its Deputy Managing Director (DMD) which is a senior
management post. At that time, UCBL was going through some sort of recession but it was planning for a revival under the leadership of the then MD Shahjahan Bhuyiah.  He was our MD at Prime Bank. He joined the UCBL and brought a reform there. He brought me there as a part of the reform. Finally, I got the chance to join Standard Bank as its DMD. In 2016, I became its AMD and later the MD of the bank.

FINTECH: Is Standard bank different from other existing commercial banks in the market?

MU Rashid: Every bank has its own strategy for moving forward. Some banks move in a very fast pace and some banks move in a slow pace. Standard Bank takes the slower path. Our Chairman Kazi Akramuddin Ahmed is a visionary business leader. He is not only a businessman, but also a philanthropist and has active involvement in the politics. He was the elected President of FBCCI- the highest association of the business leaders of the country. Our Chairman has a policy to maintain a slow but steady growth for the bank. You will see that we haven’t taken any faster or aggressive market approach. We don’t have any abnormal growth or decline; rather we are maintaining a steady growth at par with the overall market.

Because of this slow and steady approach, our loan administration is in a very good position. The percentage of bad loan in standard bank is less than 4%. As per the existing market standard, Bangladesh Bank accepts up to 5% of bad loan. The national standard for accepting bad loan is 10%. If you go the Bangladesh Bank website, you will see that the National Standard is 10%. So in terms of loan administration, our bank is in a very strong position. Even if you look at the Camel rating (an international rating standard), you will see that we are maintaining a very good position there.

FINTECH: Is this because you are advancing in a very defensive manner?

MU Rashid: I wouldn’t call this defensive; I call this a calculative manner. We want to move forward through proper calculation, not in a whimsical manner. We don’t want to falter by taking rapid and aggressive steps. You will find that we are giving our shareholders a constant 15% dividend for a number of years. Giving a constant 15% dividend to the shareholders is not an easy task in a volatile share market like Bangladesh.

You are not going to get such amount by investing into any saving instrument now. If you keep money in Fixed
Deposit Receipt (FDR), you will not get more than 6%-7%. If you invest money into saving certificates, then you will get highest 11% even though there are restrictions there in terms of investing. Besides, there are taxes after which you will not be left with more than 10%. Now if you invest in the share market on our shares, you will get 15% which I think is a very good return on investment (ROI). So that dividend alone indicates that we have a good steady growth.

I personally think this steady growth has become possible because of our good asset quality.

FINTECH: At present, there is a perception about the banking sector of the country that it is sitting on a huge pile of idle money. This is happening as the new investors and entrepreneurs are not showing their interests on borrowing. As an MD of a commercial bank, what is your take on that?

MU Rashid: I have been asked about this ‘idle money situation’ on many occasions. Let me explain you the matter. At present, all the banks of the country has a total deposit of Tk 8,26,000 crore. Every bank has to keep a deposit at the Bangladesh Bank as the form of Cash reserve ratio (CRR) and Statutory Liquidity Ratio (SLR). You have to keep that money in liquid (cash) form. Now you do the calculation-out of Tk 8,26,000 crore, you have to keep 19.5% at the central bank in the liquid form. If you keep that 19.5% of the Tk 8,26,000 in the central bank then the rest of the money can get invested for the banks in the form of loan to the borrowers. That means, there are Tk 7,00,000 crore loan in the market.

The liquid currency that all are talking about-the problem with that we cannot use that money. To understand why, you have to look at Advances to deposit (AD) ratio. The AD ratio measures loans (advances) as a percentage of deposits. A ratio of 100% or less shows that the bank is funding all its loans from deposits rather than relying on wholesale funding (funding from the capital markets or other banks). Now I can tell you about our bank. The AD ration of our bank is in a very good position. Our bank has a deposit of Tk 12,000 crore and advance of Tk 10,000 crore. So our AD ratio is 83%-84%. As per the BB regulation, I can give loan up to 85%. So that means, in our bank, we have only 1% excess money. That money we need to keep for any disastrous situation. It is not possible for us to maintain 85% loan all the time. So we maintain 83%-84%. The truth is, there is not that much idle money in the market. The money that the market has is liquid money which is being secured at the central bank as per the rules. It falls under the requirement and regulation.

The central bank needs to keep that money for tackling an emergency situation. Suppose, because of some reasons, our bank fails and we need to give back our client’s money, how we will be able to do that in that situation? To tackle that situation, commercial banks like us have to keep 19.5% in the central bank as then the BB will come forward as the lender of the large and will give me back our 19% deposit with which we can give back our client the money. Besides, if a large number of clients start drawing money from our bank then we will fall into trouble. Suppose a total of 100 of our clients come to draw Tk 100 crore from our bank but the bank doesn’t have that amount. Then what will we do? We will go to Bangladesh Bank and draw money from that 19.5% to pay the clients. Because in banking business, you cannot create any lack of confidence among your clients. If you do so, you might lose your clients in this competitive market.

So now you tell me, where you see excess money in my bank? I think the explanation that is prevalent in the market is not right.

FINTECH: In the developed countries, the FDR rate is very low. Is the low interest on FDR an indicator of the development of a country?

MU Rashid: The interest rate of the banks is determined by the market economy. There are various demands and forces in the market. These forces control the demand and supply of money in the market. The prevailing attitudes of the market and of the business community fix the interest rate. The banks cannot decrease or increase the interest rate by themselves.

On the other hand, value of money depends upon the inflation rate persistent in an economy. The higher the inflation, lower will be the value of currency. The interest rate is nothing but the time value of money. Interest is the compensation paid for depreciation in the value of currency with time. Thus, higher the inflation rate, higher would be the interest rate. Since inflation is lower in the developed economies, a lower interest rate follows.

Now to understand the current situation in Bangladesh, you have to look at the availability of cash flow in the market because that’s the major driving force that controls interest rate. When money becomes readily available, interest rate gets low but when money making becomes hard and not that available, then the interest rate gets higher. The purchase capacity of an average human in Bangladesh has increased. His aspiration for consumption is also increased with his/her increased purchase capacity. So more money is now being rolled in the market which thus increases the liquidity and flow of money. This is reducing the interest rate in the market.

It’s not a one-way reduction though. Because of this flow of money in the market, we couldn’t lend money in higher rate too.

FINTECH: Do you think 56 commercial banks are too much for a country like Bangladesh?

MU Rashid: Bangladesh is not a small country since it has a large population. We have to look at what percentage of population is being brought under banking service. We have a total of 466 upazilas and each has 10 lakh people. If you want to bring 60,000 villages under banking network then you need to have more than 9,000 branches which we now havein our country. The banks however have become congested and centralized. To bring unbanked population under banking service, we need to decentralize the banks. Bangladesh Bank has recently included the provision of opening a branch in the village if a new branch is being opened in the city. But we are losing money because of this provision because running a branch in the village is not profitable. The banks are losing but the public is getting the benefit. However, because of this initiative, a large part of unbanked population is being brought under banking network. To facilitate the banking service, we have now started agent banking. We have been deploying agents where we don’t have branch.

I believe the branch expansion of banks should be done through a proper policy and the banks shouldn’t be concentrated in one place. This will create healthy banking culture in Bangladesh.

FINTECH: The banks will obviously be going to go through a lot of changes in the near future because of the advent of different technologies. How are Bangladeshi banks coping up with the changes that technological disruption is bringing?

MU Rashid: We have three types of banks in Bangladesh-state owned banks, commercial banks and the foreign banks. The foreign banks are obviously having the best technological adaptation since they are parts of global banking chains and the technological adaptation is happening for them in global scale.

The commercial banks entered into the banking sector in different time period. The first generation private commercial banks have already passed more than 30 years, the second generation banks have passed 15 years and the third generation banks 5 years.

I can tell you that now commercial banks from all generations are gradually investing on technology since all of the operations of the banks are technology based. In our bank, 100% of the operations are automated and we are processing everything in centralized manner. We are using core banking software (CBS) to run our operations. We are giving all sorts of services like sms banking, internet banking that the foreign banks are giving. So, there are not that many differences between us and the foreign banks.

Having said that, I can tell you that there are still some differences. All of the foreign banks deploy foreign software. If you deploy foreign software, it will cost you Tk 60-70 crore, whereas if you deploy local software, it will not cost you more than Tk 4-5 crore. There are still some differences of quality between the local and the foreign software.

FINTECH: Is your bank using local or foreign software?

MU Rashid: Standard bank is using local software. The deployment of software depends on the mindset of the banking management. There is this common notion among many banking management that foreign software is better than the local software. But they are having this notion without trying the local product. They sometimes think that the local software cannot give full-proof solution but I believe that is nothing but lack of confidence. We had confidence in local software and we have deployed that. We have not faced any problem.

FINTECH: After the cyber heist incident of Bangladesh Bank, the issue of cyber security came to limelight. Besides, in this era, as most of the banking transactions are made digitally, the cyber security issue has become more important than ever. What does Standard Bank do to ensure cyber security?

MU Rashid: Cyber security is a big threat for the banking industry. Bangladesh Bank has already given us many directives. It directed us to install anti skimming devices in the ATM booths. There are a total of 8,500 ATM booths across the country and in 70% of those ATM booths, anti-skimming devices are already been installed. The works are going on in the rest of the booths. By this way, we have been able to create confidence among the customers.

Now in case of security in banking transaction for the Standard Bank, we are using a secondary firewall. We had a primary firewall but now we have a secondary firewall. We have alerted our IT departments and asked them to practice basic security practices. We have also formed a cyber security cell. We have been conducting a number of trainings. I believe this is boosting up our cyber security measures.

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