The increase in unproductive loans (NPL) and the shortage of quality personnel are the main challenges facing the banking sector, said a senior banker.
The number of banks in the country is more or less proportionate to the size of the economy, said Syed Mahbubur Rahman, CEO and CEO of Dhaka Bank, at The Daily Star in an interview on Monday.
"But the size of the workforce of quality has not increased."
Educational institutions and business institutions should work in tandem to develop a quality workforce by giving students practical knowledge, he said. "Such a practice is rare in Bangladesh"
As a result, students may not perform well in a professional setting once they have graduated even with high scores.
The sector suffers severely from the shortage of experienced people in the middle and upper positions, he said.
Rahman, who has been working in this line of work for three decades, has developed all the activities of the banking sector.
Expressing concern about the increase in default loans, he said that the tendency of banks to reprogram and restructure loans to show inflated profits was ultimately costing them.
The loans become eventual default, increasing the ratio of undesirable claims of the industry. According to data from the Bank of Bangladesh, total loans in the banking sector reached 10.53% at the end of March this year, compared with 9.23% a quarter ago.
"The rescheduling of loans is necessary, but the recovery will have to be good," said Rahman, who joined Dhaka Bank in November 2015.
Dhaka Bank maintains a higher provision of profits to keep its book clean, he said. In March, the bank's default loan ratio was 4.34 percent, according to central bank data.
The banking sector may face a bit of liquidity crisis if the existing credit growth continues and the government takes Tk 20,000 crore for the energy sector, he said.
"The energy sector is a good sector for investment," he said, adding that the risk factor lies in the implementation of the project.
The bank's total deposits are at 15,716 Tk against the loan portfolio of Tk 13,468 crore. The bank achieved a net profit of Tk 146 crore last year.
Dhaka Bank, which will enter its 22nd year of activity on July 5, is gradually focusing on wholesale banking retail banking. It is transforming its consumer banking platform to make it more convenient for its customers.
The bank also adopted a cost – cutting strategy to make it more agile in the future. It plans to reduce its portion of fixed deposit and block the current account, saving accounts.
Dhaka Bank also plans to introduce banking services to agents to deal with remote areas. "We asked for the authorization of the banking agent."
It is also expanding its SME loan portfolio to diversify its business. The growth of SMEs was 10 percent when Rahman joined the bank and now it has grown to 16 percent.
"We intend to increase the growth of loans to SMEs to more than 20 percent over the next two years".
The rate of interest on loans to SMEs is high because the business is risky, he said.
"SME entrepreneurs can not recover their business even if they are affected only once."
In addition, they do not have an adequate guarantee and professional experience.
"This is not just Bangladesh, the rate of interest on loans to SMEs is high worldwide," he added.