Foreign banks thrive owing to failure of local ones

Hasan Adnan

Bonik Barta graph

Local banks are gradually getting weaker due to default loans, fragile capital structure and incompetent management. Business of many banks in the country is shrinking alongside reduction in profit. Taking the advantage of the failure of the local banks, foreign banks operating in the country are expanding their business and increasing profit. Almost every foreign bank has made record profit in 2023 and they are also doing well in the current year.        

According to audited report on the activities of the foreign banks, Standard Chartered Bank has made a record profit of Tk 23.35 billion in 2023. In the history of country’s banking sector, no bank has ever earned such a net profit. In 2022, the profit of the multinational bank stood at Tk 16.55 billion. That means, the bank registered a 41 percent growth in net profit. The Hong Kong and Shanghai Banking Corporation Limited (HSBC) recorded over 70 percent in net profit. The multinational bank made a profit of Tk 9.99 billion in 2023. The net profit of the bank in 2022 stood at Tk 5.87 billion.

Nine foreign banks are operating in the country with the approval of Bangladesh Bank. Of them, the activities of United Kingdom-based Standard Chartered and HSBC are most rolling. Apart from these two, Sri Lanka’s Commercial Bank of Ceylon, Citibank NA, Woori Bank of South Korea and State Bank of India operate in Bangladesh to a significant extent. Pakistan-based Bank Alfalah and Habib Bank are lagging behind in this regard. Private bank Bank Asia has decided to take over the Bangladesh operation of Bank Alfalah. And, National Bank of Pakistan is about to be bankrupt due to heavy loan burden.

Analyzing the financial report on the foreign banks, it has been found that profit of all but Woori Bank has gone up. Commercial Bank of Ceylon has increased its profit by 65 percent as compared to the previous year. In 2023, the bank’s net profit was Tk 4.38 billion. During the same period, Citibank NA made a net profit of Tk 2.77 billion while State Bank of India made Tk 2.34 billion.

Former Deputy Governor of Bangladesh Bank Muhammad A (Rumee) Ali believes that the profit of the overseas banks are going up because of the failure of the local banks. He was also the first Bangladeshi chief of Standard Chartered Bank’s Bangladesh operations. “The cost of deposit collection at the foreign banks is most minimum. They have adequate liquidity to invest. If the money is used in safe investment like government treasury bills and bonds there will be a good profit,” he told Bonik Barta.

But, he said, “The local banks are not able to do that. They are having to get deposit at higher interest rates. And, the condition of many first generation banks is now shaky due to lack of good governance and confidence. They cannot get deposit even after offering high interest rates.”

Continuous loan default has dealt a knockout blow to the country’s banking sector, feels Ali. “The capital structure of most of the banks is up to the international standard. Due to increased defaulted loan, many banks are facing capital shortfall. As a result, these banks cannot invest significantly and cannot open letters of credit (LC). The foreign banks are taking full advantage of this. They can open LC at a little commission while the local banks need third-party confirmation in opening LC.

Among the private banks of the country, National Bank Limited used to have the highest amount of paid-up capital with Tk 32.19 billion. As its paid-up capital was high, the first generation bank was more capable of big investment and opening LC. But, it has now lost its capital due to irregularities and corruption in last one decade. Following incurring a record net loss of Tk 32.60 billion in 2022, the bank lost another Tk 14.97 billion in 2023. Due to severe liquidity crisis, it has stopped providing big loan and opening LC for nearly two years.

In terms of assets and liabilities, Islami Bank PLC is the largest bank in the country. At the end of 2023, the value of assets and liabilities of the bank was worth over Tk 2 trillion. With so much assets, it made a net profit of only Tk 6.35 billion last year.                          

Like these two first generation banks, the profit made by most of the private banks is not satisfactory. The state of state-owned banks with regard to default loan, management standard and profit is even worse.

About the reasons behind the failure of the local banks, Mutual Trust Bank Managing Director Syed Mahbubur Rahman said, “The quality of assets of the local banks is inferior. The cost of fund is high, but yield is low. On the other hand, cost of fund of the foreign banks is very low, but high yield. Foreign banks operate with a few branches and a modest workforce. This is why profit of the foreign banks is going up exponentially as compared to the local ones.”      

More than 50 banks are competing in a small market like Bangladesh. Therefore, none could perform as expected. The foreign banks manage assets and liabilities very well. As a result, good customers opt for the foreign banks while we have to deal with the rest,” he said.

Multinational Standard Chartered Bank started its operation in this region through opening a branch in Chittagong in 1948. At present, the bank has 18 branches and an Islamic banking window. The assets and liabilities of the bank at the end of 2023 were worth Tk 604 billion. The amount of distributed loan was less than Tk 300 billion. With such a portfolio, the bank registered the higest profit among all the banks. It has made large profit for three years in a row. The net profit in 2021 was Tk 7.58 billion. It increased to Tk 16.55 billion in 2022. The amount went up to record high in 2023 with Tk 23.35 in 2023.   

Standard Chartered Bank Chief Executive Officer Naser Ezaz Bijoy was not immediately available for his comments. But, he told Bonik Barta earlier, “Three aspects – success of the customers, good governance and enhanced financial solution – have been the pillars of economic success in 2023. Wise risk management, good use of liquidity high-quality financing and support of the consumers, colleagues, regulators and stakeholders have helped us do well in a challenging year.”

“The deposit increased by Tk 55 billion in 2023 and loan went up by Tk 5 billion. The capital base of the bank is highest in the banking sector with more than Tk 110 billion,” he said.  

Local banks have been in liquidity crisis for two years. Standard Chartered and other good foreign banks are free from this trouble. The interest rates rose from 9 percent to 14 percent owing to the liquidity crisis. Interest rates on government treasury bills and bonds surpassed 12 percent. Foreign banks are earning high profit making money investing in these bills and bonds. Standard Chartered alone invested Tk 212.35 billion in bills and bonds. Commercial Bank of Ceylon invested Tk 26.34 billion, Citibank NA Tk 17.75 billion while State Bank of India invested Tk 9.46 billion.

Khondoker Rashed Maqsood has experience of working as chief executive both at local and foreign banks. He was the Bangladesh chief of Citibank NA before serving two local banks as the chief executive. About profit and business of the foreign banks, Maqsood told Bonik Barta, “Clean image is very important for any bank. The local banks lack in this. No one worries about their deposit with Standard Chartered. But, in cases of local banks, people do worry about their deposit.”

“Nowadays, people give priority to safety of their deposit rather than profit. This is why, deposit has increased in local banks that are recognized as good. On the other hand, deposit is going down in the controversial banks. Weak banks are unable to attract deposit even by offering high interest rates,” he said.    

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