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Banking on SMEs

UCB's managing director plans to move away from the high-risk corporate sector

Md Fazlur Rahman
UNITED Commercial Bank Ltd (UCB) plans to move away from high-risk corporate lending and towards small and medium enterprises and exporters in the next two years, its managing director said.
"We are very enthusiastic about SMEs and export sectors. We will bring to forefront the sectors that are production-oriented, that generate employment and GDP growth," Muhammed Ali, managing director of the private commercial bank, told The Daily Star in an interview recently.
He said the bank is gradually distancing itself from the corporate sector due to the high default culture, while terming most of the corporate loans "purposeless investment".
"There has to be a purpose behind every investment and this purpose has to be identified to know where the money is going."
Subsequently, the bank has decided to focus on SMEs, export and remittance, so it can play a major role in the socioeconomic development of the country.
A career banker, Ali has established himself as one of the successful CEOs of the country's banking sector following his spells at Shahjalal Islami Bank and Social Islami Bank.
In just a year he has put an under-performing bank into the praiseworthy growth trajectory, by helping it raise its base in deposits, loans and advances, imports and exports significantly.
He ascribed the bank's recent success to the reforms and business strategies he brought in soon after he took over in November 2012.
"We have been able to stick to our plans. All of my officials, officers and managers acted in line with our business strategies. As a result, our growth is on the right track."
Ali, who holds a post graduate degree in economics from the University of Chittagong, said UCB had no structure to serve SMEs when he joined. Now it has a separate SME division.
At present, SMEs account forTk 8,600 crore in the bank's total loan portfolio of Tk 15,000 crore.
"We are seriously thinking of turning the bank into an SME and export-focused bank," he said, adding that he would be able to achieve the target during his current tenure.
Unlike many of his fellow bankers, Ali thinks that there are fewer risks in SME banking than in corporate banking.
"In my long experience, I have seen that the
repayment rate in the SME sector is 99 percent, whereas it is less than 50 percent in case of corporate banking. There is an avenue for expansion in the SME sector."
He said his bank has already surpassed BRAC Bank, which has a loan portfolio of about Tk 5,000 crore in the SME sector, as the lender of choice for the SMEs.
"We have separate SME departments in every branch. We have already sent messages to our branches to go for SMEs, not for any corporate loan."
UCB is expected to make an operating profit of Tk 700 crore this year, up 22 percent from last year.
It came in a year when almost all banks are watching their operating profits plummet, mainly due to lengthy political unrest which has sapped investors' appetite for Ioans.
The UCB MD said his bank has not given the utmost priority to profit-maximisation, as he has made it clear about his strong belief on 3Ps—People, Planet and Profit—since he joined the bank.
"Of course, we will make profits to sustain the business. But our attitude for profits should not be that of the now almost defunct loan sharks. Our plan was to devise our business in a way which automatically generates profits."
He said his bank does not want to open any more branches in cities and major district towns, as these business centres are over-saturated amid uneven competition among banks.
"We are no longer interested in this jugglery. Rather, we want to open more branches in rural areas to bring the small segments of depositors, entrepreneurs and investors in our fold."
"We really want to promote those entrepreneurs and investors who are committed to supporting the economy."
Ali went on to praise the current central bank governor, Atiur Rahman, for taking steps to incorporate the country's unbanked people into the mainstream banking sector, as only 20 to 25 percent people are linked with the formal financial sector.
"If we can include the remaining population under the banking system it will transform the whole economy."
Earlier this year, UCB launched its mobile financial services, UCASH, to make transactions more official and add the unbanked to the financial system.
Unlike the other mobile financial services available in the country, deposits with an UCASH account will earn the account-holders interests.
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The bank chargesTk 12 for sendingTk 1,000-- a rate much lower than those of other service providers. The bank has 10,000 agents across the country and already 30,000 accounts registered. The bank plans to increase the number of agents to 30,000 in a year.
"We have got very good response," he said, adding that on average Tk 6 crore changes hands every week through the service.
Ali also said the state of the banking sector is very delicate, as the overall demand for loans has gone down to below 11 percent from the central bank's stated private sector credit growth target of 16 to 17 percent.
"Banks are not being able to utilise their liquidity properly as entrepreneurs are not taking loans. Nobody wants to take risks. Their cost of doing business has gone up sharply. As a whole, the business has become very costly."
About the recent scandals in some banks,
Ali said like every other sector there are some black sheep in the banking sector.
"It is not possible to wipe out them totally. But good governance, robust monitoring system and strong regulatory policies can rein in their activities."
He warns if one irregularity is compromised then the floodgate will open. The bank, which has 139 branches, has included microfinance in the SME banking segment.
At present, the bank is catering to microborrowers through microfinance institutions, but it has plans to create a separate division for the sector in a bid to give the borrowers access to funding much lower than the 27 percent that MFIs charge at present.
"As a result, there is a pressure on the borrowers in terms of high interest rates. So, we are planning to do something on our own."
fazlur.rahman@thedailystar.net