Banking in Bangladesh

On Saturday 25 April, the International Retail Banking Summit in Bangladesh 2015 took place. As Efma’s first event in Bangladesh, it gathered more than 150 participants, and served as a platform for the retail banks to discuss key issues affecting the retail financial services industry in the country. We spoke to some of the speakers at the event to find out more.

Bangladesh BankWhat makes Bangladesh unique in terms of retail banking?

Sarder Akhter Hamed, EVP & Head of Retail Banking at United Commercial Bank: With a population of more than 166 million, Bangladesh offers a big opportunity for the expansion of retail banking. Indicators are on a positive shift as GDP has crossed US$1,190 with a strong projection of further growth. The median age is 25.8 and on the rise, which indicates that more people are of working age. Moreover, the people are talented and the willingness to work is really high. What’s more, labour is still cheap. Within this context, there is a huge growth opportunity in the expansion of the retail banking business if we can offer cheaper banking solutions for these untapped populations.

Ali Reza Iftekhar, managing director and CEO, Eastern Bank: It has a large population density, a growing middle class, a varied financial need and a strong regulatory framework. With a large unbanked population, who are becoming aware of the benefits of financial inclusiveness, the market has a tremendous growth opportunity.

Shitangshu Kumar Sur Chowdhury, deputy governor, Bangladesh Bank: There are a number of features that make Bangladesh unique, but its large unbanked population is perhaps one of the most significant areas of differentiation. Around 29 million families of rural Bangladesh are engaged in farming activities and 50 percent of those are sharecroppers. This large segment had no access to formal financing. Another unique feature of the region is the development of Islamic banking. Today, Islamic banking makes up one-fifth of the total banking sector, comprising eight banks. Islamic banks have been growing faster than the conventional banks and are now focusing on a wider horizon, encompassing not only the conventional Shariah products but also products geared to SMEs, microfinance, and financing in the agriculture sectors.

What are the biggest challenges facing retail banks in Bangladesh today?

Chowdhury: Maintaining the path to sustainable economic growth in the real economy is the overriding challenge facing Bangladesh today. Only by achieving this goal can we reduce the income and wealth gap between different segments of the population, and sustain socially inclusive prosperity which is at the heart of the Nation’s aspiration. Only by sustainable growth can we tackle the unemployment which has left millions of our young people without job and prospects. This is a time for all of us involved in the banking industry and beyond to unite around to create a banking industry diverse enough to meet diverse needs of Bangladesh’s economy. Our task is significant. But if we succeed, we will be able to do our part to improve the future for millions of our people.

Iftekhar: Retail banking is a relatively new concept in Bangladesh. Most banks are very much into branch banking, with specific focus on corporate or institutional business. Individual customer financial needs and preferences are yet to be fully addressed. Changing the industry mind set into a consumer centric environment is the biggest challenge. Price-war instead of service-war comes into the same purview as well. The absence of attractive and long term investment plans also contributes towards the challenges we face every day. Most importantly, the human resources development is the key area to address for all of us.

Hamed: The cost of catering banking services to the large unbanked population is the biggest challenge for Bangladesh. Though mobile financial services has been introduced in the country, the coverage of such services is still limited to in border remittance, which is a very small area of the money in motion. Also interbank transactional connectivity, other than cheque or card, is a barrier which banks need to overcome to create a bigger transactional network.

How are banks in the region meeting those challenges?

Hamed: Banks are still struggling to establish the growth of online payments through cheaper channels. Educating the mass market to transact through digital channels is one of the key development areas. Banks are putting up effort to establish the solution of mobile financial services, but this network requires investment and maturity.

Chowdhury: At BB we have chosen to take a catalyzing role in reorienting our financial sector’s goals and ethos in socially and environmentally responsible direction, guiding the sector in mainstreaming CSR in corporate goals and objectives and launching a comprehensive well-orchestrated financial inclusion campaign in which banks and financial institutions are participating with spontaneity and enthusiasm. This is meaningfully helping attainment of the inclusive growth and poverty eradication goals of our Government’s near and longer term national development plans; by upholding healthy output and employment growth in Bangladesh economy even in the backdrop of ongoing global slowdown.

Iftekhar: We are learning every day. Some banks, like EBL, actively promote consumer banking and that is leading others to change their key area of focus gradually. Central Bank is guiding us on various regulatory, service and customer-centric issues that will help boost retail banking in Bangladesh. Inter-bank communication and the understanding of the common goal is now far better through various associations like ABB and BAB. All of us are now aligned with the financial and non-financial aspirations of the people and the regulators alike.

What was the main focus of your presentation at the Summit?

Hamed: My main focus will be to give an idea of what we have innovated and adapted under the payments network. What is happening in the emerging economy regarding digital money, what benefit digital money will give to our economy and what policies we can take to accelerate the growth of digital money.

What do you think are the biggest benefits of attending a Summit like this?

Chowdhury: I believe that this summit provides a great learning opportunity for everybody involved in retail financial services here. Participants get the best possible benefits from a conference through active participation and productive dialogues.

Iftekhar: Clearly the exchange of ideas from the respective experts in their fields is the biggest benefit; we shared our thoughts and dreams, as well as our apprehensions and challenges.

Hamed: Any seminar with clear perspective helps attendees to think differently and helps to innovate new routes to break the barriers of the imagination. This seminar helped us to look into the context differently and will help us to break the barrier with ideas which will change today’s perspective of banking.

– Efma Feature