The Daily Star – Light at the end of the tunnel

Written by Sajjadur Rahman

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17 December 2015 - Borrowers have taken advantage of the banking industry’s tendency to run after the same clients – be it garment makers, steel makers or ship breakers, a top banker said.

The consequences of the trend were seen in several areas, said Ehsanul Haque, managing director of Mercantile Bank, who has banking experience of more than three and a half decades.

The tendency not only over-financed the borrowers and resulted in a rise in nonperforming loans, but also took a toll on entrepreneurship in the country, he said.

“Every bank is trying to do everything. If everybody (bank) opens LCs for ship-breaking, the business will not be sustainable as Bangladesh does not have so many ship-breakers,” Haque said.

An unhealthy competition has encouraged borrowers to take loans more than they needed, he said, adding that sometimes borrowers were given Tk 50 crore when their requirement was only Tk 10 crore.

As a result, the additional money got diverted to unproductive sectors such as land, where businesses invested hundreds of crores of taka, and that money has remained stuck there for long, he said.

“This practice has also prevented the banks from diversifying their business,” Haque told The Daily Star in an interview at his office recently.

He started his career as a management trainee in then Grindlays Bank in 1980. He was also the managing director of Brac Bank and Prime Bank before joining Mercantile.

He also worked as the chief executive of state-owned Infrastructure Development Company Ltd, a non-bank financial institution.

“There are 56 banks in Bangladesh and some of them should become specialised ones, such as development and agriculture banks. And some other banks should become microfinance and SME banks,” said Haque, who also worked in India, Vietnam and Afghanistan as a banker.

Microfinance institutions have limited funds, but banks have unlimited money, he said, adding that Mercantile Bank wants to be in the entire business — from micro finance to large business segments.

He also talked about the overall banking business and its challenges.

Business activities could not keep pace with expectations due to infrastructure constraints and very high cost of lands.

The entrepreneurs are concerned about political stability and the longevity of the stability, he said.

“We are facing a shortage of borrowers, and the deposit growth has exceeded the loan growth,” Haque said.

Loan is being repaid and it is not being replenished, he said, adding that there is no vibrancy in the overall economy now.

Even the declining interest rates have failed to create new demands and fuel entrepreneurship, he said.

“We saw huge enthusiasm among entrepreneurs 15 years ago. Maybe, the market has become saturated or the entrepreneurs do not want to take risk,” he said.

The situation has made the banking business difficult, and if the trend continues for a long period, many banks will have to pay more than what they will earn in the future, he said.

Managing asset-liability has become a big challenge under the circumstances.

Yet, Haque sees great potential and light at the end of the tunnel.

Once Accord and Alliance, two factory inspection agencies, finish their inspections and set the standards and rules for the garment industry to follow, growth in the sector will accelerate, he said.

“Many foreigners are waiting to come to Bangladesh with their investments.”

There is no reason that Bangladesh will not do well in the garment sector in future. “We understand the business pretty well.” Be it banks, entrepreneurs, customs officials, ports, the central bank or the finance ministry, all know the business and the dynamics, he said.

The emergence of new markets will certainly help garment exports rise, he said.

But Haque thinks small garment makers will not survive because of growing compliance issues and competitive advantages of big players.

He called upon garment entrepreneurs to set up joint ventures with foreign companies.

He said the proposed special economic zones (SEZs), if materialised, would create new entrepreneurs.

The government should allocate the SEZs to different sectors, and provide the entrepreneurs with electricity and gas and give them training, he said.

The support will help small and medium enterprises in the SEZs to be suppliers of big players.

Haque also suggested the media highlight the positive things. “We talk more about negative things than the positive ones. Rana Plaza collapse was definitely a bad feeling, but the way it was presented to the world was damaging.”

On the Sonali Bank or BASIC Bank’s scams, he said it is not the usual trend of the overall banking industry. “It was all about few unusual incidents. We should not forget that the banking industry played a significant role in industrialisation and it revolutionised garment exports by innovating back-to-back LCs,” he said.