Profit of foreign banks increasing

Decreasing in local banks

Zarif Mahmud: The banks are becoming increasingly weak due to high non-performing loans, fragile capital structure and inefficient management. In addition to the decrease in profits, business is also shrinking in many banks of the country. Business and profits of foreign banks are increasing due to the failure of local banks. Almost all foreign banks operating in the country posted record profits in 2023. These banks are doing good business this year too.
According to the audited financial reports of foreign banks operating in the country, Standard Chartered Bank made a record net profit of Tk 2,335 crore in 2023. Earlier in the history of the country’s banking sector, no bank could make such amount of net profit.
Even in 2022, the net profit of the multinational bank was Tk 1,655 crores. According to that, last year the net profit of the bank increased by 41 percent. Hong Kong and Shanghai Banking Corporation Limited (HSBC) saw more than 70 percent growth in net profit. The multinational bank made a net profit of Tk 999 crore in 2023. The previous year HSBC’s net profit was Tk 587 crore.
Nine foreign banks are operating in the country with the approval of Bangladesh Bank. Among them, the business and operations of UK-based Standard Chartered and HSBC are more extensive. Besides, Sri Lankan Commercial Bank of Ceylon, United States’ Citibank NA, South Korea’s Woori Bank and India’s State Bank of India also have significant operations. Pakistan-based banks Al Falah and Habib Bank are slightly behind in this regard. In this, the private sector Bank Asia has decided to acquire the operations of Bank Al Falah in the country. And National Bank of Pakistan is now almost bankrupt due to the burden of defaulted loans.
By reviewing the financial reports of the banks, it can be seen that the profit of all the banks except Woori Bank increased last year. In this, Commercial Bank of Ceylon’s profit increased by 65 percent. Last year, the bank’s Bangladesh office made a net profit of Tk 438 crore. Citibank NA made a net profit of Tk 277 crore during the same period. And State Bank of India made a net profit of Tk 234 crore.
Former Deputy Governor of Bangladesh Bank Muhammad A (Rumi) Ali thinks that the profit of foreign banks is increasing due to the failure of local banks. He also has the experience of being the first Bangladeshi to serve as the chief executive of Standard Chartered Bangladesh. He said, “Foreign banks have the lowest deposit collection costs. They also have enough liquidity to invest now. This money will get high profit even if it is safe investment like government treasury bills and bonds. But domestic banks do not have that condition. Due to liquidity crunch they have to collect deposits at high interest rates. Again, due to lack of good governance and lack of trust, the condition of many first-generation banks is now fragile. They are unable to collect deposits even by offering high interest rates.
Rumi Ali believes that increasing defaulted loans have ‘broken the back’ of the country’s banking sector. He said, the capital structure of most of the country’s banks is not of international standards. Again, many banks in the country are in capital deficit due to high defaulted loans. Because of this, it is not possible for the banks to open any large investment or LC. Foreign banks are taking advantage of this opportunity. They are able to open LC with low commission. And when domestic banks open LC, third party confirmation is required.
National Bank Limited has the highest paid-up capital among private banks in the country. The paid-up capital of the bank is Tk 3,219 crores. As the capital was high, the first-generation bank also had the ability to make large investments and open LCs. But the bank, which has been disturbed by the irregularities and corruption of the past era, has now lost its capital. After posting a record net loss of Tk 3,260 crore in 2022, the bank posted another Tk 1,497 crore loss in last year. The bank, facing acute liquidity crisis, has been closed for disbursement of large loans and opening of LCs for almost two years.
The largest bank in the country in terms of assets and deposits is Islami Bank Bangladesh Plc. At the end of last year, the assets and deposits of the bank stood at Tk 2 lakh 3 thousand 233 crores. Even with such huge assets, the bank got only Tk 635 crore net profit in 2023.
Like these two banks of the first generation, the profit situation of most of the private banks of the country is not satisfactory. And state-owned banks’ defaulted loans, management quality and profitability situation are worse. How strong a bank is in investing depends on its capital structure. According to the internationally discussed Basel-3, the country’s banks should have a minimum capital reserve ratio (CRAR) against risk-based assets of 12.5 percent. Many private banks of the country, including state-owned banks, could not save this capital. The average CRAR of state-owned banks was 6.03 percent till September last year. While the average rate of private banks is 12.82 percent, foreign banks have been able to save CRAR at the rate of 35.72 percent.
Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank, said, “Compared to foreign banks, the quality of assets of domestic banks is weak.” The cost of funds of domestic banks is high but the yield is low. On the other hand, the cost of funds of foreign banks is very low but the yield is high. Foreign banks operate with few branches and manpower. Due to these reasons, the profit of foreign banks is increasing a lot compared to domestic banks.
Even after 50 years of independence, he sees the country’s failure to enter the international arena as a big failure. Syed Mahbubur Rahman said, ‘More than half a hundred banks are competing in a small market. Because of this, no one could release the expectation. Asset and liability management of foreign banks is very good. Due to this, the good customers of the country go to foreign banks. We are forced to do business with the good customers of evil.’
Multinational Standard Chartered Bank started operations in the region by opening a branch in Chittagong in 1948. Currently the bank is operating in Bangladesh with only 18 branches and one Islamic banking window. At the end of 2023, the bank’s total assets and deposits were Tk 60,483 crores. Disbursed loan status is less than Tk 30 thousand crore. Even with this portfolio, Standard Chartered is making the highest net profit among the banks in the country. The bank has made huge profits in the last three years. The bank’s net profit in 2021 was Tk 758 crore. In 2022, it increased to Tk 1,655 crores. And last year it increased to a record Tk 2,335 crore.
According to a review of Standard Chartered’s financial reports, the bank’s income from the interest sector increased by 58 percent last year compared to the previous year. In 2022, Standard Chartered’s net income from this sector was Tk 1,277 crore. Last year it released Tk 2,018 crore. The bank’s income has also increased from the investment in government treasury bills and bonds. In 2022, the income from this sector was Tk 735 crore, but last year it exceeded Tk 1,224 crore. However, last year Standard Chartered’s income from commission, exchange and brokerage decreased slightly. In 2022, the income from this sector was Tk 1,037 crore, but last year it came down to Tk 1,024 crore. In total, the bank has earned an operating income of Tk 4,267 crore in 2023. In the previous year, Standard Chartered’s operating income was Tk 3,500 crore.
The multinational bank’s return on investment (ROI) ratio last year was 20.91 percent. And return on assets (ROA) was 4.09 percent. Although the country’s banks are in a very fragile situation in these two important indicators. The ROI of the country’s best private banks is below 6 percent. In case of ROA, this rate is at maximum 2 percent.
Standard Chartered Bangladesh Chief Executive Officer (CEO) Nasser Ejaz Bijay’s statement on this issue was not immediately available. But earlier he told, ‘Customer success, good governance and improved financial solutions – these three are the pillars of Standard Chartered’s financial results in 2023. Prudent risk management, efficient use of liquidity, improved financing and support from customers, peers, regulators and other stakeholders have helped us achieve good results even in a challenging year.’
He said that Standard Chartered Bangladesh’s deposits and loans increased by Tk 5,500 crore last year. The bank’s capital base is the highest in the financial sector (over Tk 11,000 crore) and its capital adequacy ratio (CRAR) is three times higher than regulatory requirements and the financial sector average.
The liquidity crisis in the country’s banks has been going on for two years. First tier foreign banks including Standard Chartered are completely free from this crisis. Due to the liquidity crisis, the country’s bank loan interest rate has increased from 9 percent to around 14 percent. And the government treasury bill-bond interest rate has exceeded 12 percent. In this situation, foreign banks are getting high profits by investing in treasury bills. At the end of last year, only Standard Chartered’s investment in government bills and bonds was Tk 21,235 crores. At the same time, Commercial Bank of Ceylon had an investment of Tk 2,634 crore in government bills and bonds. Citibank NA has invested Tk 1,775 crore and State Bank of India has invested Tk 946 crore in government bills and bonds.
Khandkar Rashed Maqsood has experience of serving as a top executive of both domestic and foreign banks. He was once the head of the Bangladesh office of the multinational Citibank NA. Later, he also has the experience of serving as the top executive of two private banks of the country. When asked about the business and profits of foreign banks, Rashed Maqsood told, “A clean image is very important for any bank. In this regard, many banks in the country are deficient. By placing a deposit with Standard Chartered, no one forgets to worry about getting it back. But in many banks of the country, customers have to worry about getting their deposits back. People are depositing in Standard Chartered without any expectation of interest or profit. Because of this, their fundraising costs are very low. They are able to make high profits by investing in government bills and bonds. The income of foreign banks is increasing from all sectors including disbursed loans, investment, commission, offshore banking.
Khandkar Rashed Maqsood said, “People now give more importance to the security of deposits than profit. Because of this, deposits have also increased in domestic banks which are recognized as good banks. On the other hand, the deposits of the controversial banks are gradually decreasing. Weak banks are unable to increase deposits even by offering high interest rates.