The United Commercial Bank (UCB) will expand its SME credit line as it reaps higher yields from this segment.
The Bank is also putting thrust on ready-made garments (RMG) business considering its competitive advantages and huge income availability from non-funded sources from this sector.
"Our bank (UCB) has already consolidated its position in every area of businesses in the last few years but we will put focus on newly developed diversified areas in the coming months," UCB managing director Muhammed Ali told The Financial Express in an interview recently.
Currently, Bangladesh holds the second position on the global podium in RMG exports, following closely behind China. Bangladesh's RMG sector contributes to more than 81 per cent of the country's exports and offers 4.4 million direct employments, thus having a considerable impact on the country's socio-economic development. Country's RMG exports have consistently grown in past 5 years, out of which 60 per cent of Bangladesh's RMG export goes to its biggest consumer, the European market, and around 9.64 per cent goes to the USA, making it the second largest market for Bangladesh's apparel industry.
In 2016, SMEs accounted for 38 percent of all loans and advances, while corporate clients made up 30 percent of the loans and advances -- down from 34 percent in 2012.
"My observation is, so-called corporate clients default on their loans. On the other hand, the small borrowers do not default."
When a large borrower defaults it comes as a major shock because thousands of crores of taka are normally involved.
On the other hand, even if the small borrowers default, the amount is to the tune of Tk 10 lakh or Tk 50 lakh, which is not strong enough to shake a bank, Ali said.
Employment generation is a challenge for many countries, but in Bangladesh SMEs play a vital role on this front.
"Bangladesh cannot set up large industries overnight, but it can definitely promote SMEs."
"We enjoy a unique opportunity of having a demographic dividend upto 2031 as a significant 31 per cent population of our total population comes from youth segment.
Policymakers and social scientists optimistically discuss the demographic dividend as if the benefits are imminent and within grasp. However, many developing countries, including Bangladesh, will not be able to achieve this economic benefit without appropriate policies and substantial investments in a number of areas including SME.
"Indeed, as recent development history suggests, the demographic dividend is wasted if such policies and SME investments are not in place," the UCB MD pointed out.
Merger of small banks with the big ones is a must, the career banker noted.
"Performing banks are facing uneven competition due to presence of a large number of banks in a small economy, so only merger can be a solution to end such a menacing problem," the UCB MD noted.
When Mr Muhammed Ali took the reins of United Commercial Bank on November 1, 2012 the lender's standing in the industry was not significant.
But in the last four years it has witnessed a thriving growth and now can be spoken of in the same breath with the best of them.
Mr Ali said with the unwavering support of the board and his colleagues, he has been able to bring in positive changes to the bank.
"We are now a very strong bank and on a very strong footing," the UCB MD said.
Its net profit more than doubled in the last four years: from Tk 1.58 billion (158.61 crore) to Tk 3.98 billion in 2015. The operating profit jumped to Tk 8.02 billion in 2016 from Tk 5.76 billion in 2012.
The UCB's cost of funds and net spread fell to 7.59 per cent and 2.31 per cent respectively in 2016 against 11.32 per cent and 2.44 per cent of 2008.
Deposits grew more than 50 percent to Tk 255.70 billion in 2016, from Tk 170.53 billion in 2012. UCB's import and export businesses more than doubled during the period, boosting the bank's income in the forms of fees and exchange gains.
High-cost deposit came down to 45 percent from 70 percent over the period.
"As the cost of deposit has gone down, the bank is able to lend at lower interest rates," Mr Ali said, adding that the spread is within the limit of Bangladesh Bank.
UCB has always aligned its plan with the national strategies, he said.
For instance, it is now providing a guarantee of Tk 52.0 billion for the Padma Multipurpose Bridge without any commission.
"We have given priority to the national interest although we have had to incur capital cost and maintain provisioning," Mr Ali said, adding that UCB has played an important role in case of economic growth, employment generation and remittance income.
Remittance, which is credited for the country's healthy foreign currency reserves, can be doubled to $30 billion a year if the right steps are taken, and the first generation bank wants to do something on this issue.
UCB plans to set up a dedicated foundation for the welfare of migrant workers.
Under the plan, prospective migrant workers will be imparted vocational training on various trades such as electrical works and plumbing and enhance their communication skills.
Some 100 workers would be sent abroad every year, with UCB bearing all costs. The only requirement for the migrant workers would be to maintain an account with the bank and send their remittance through it.
"If we can do this, our people will be equipped with the right skills, which will help them earn more compared to unskilled workers. Then we will be able to double our remittance income easily."
At present, UCB is a very compliant bank, which is reflected on its CAMELS (capital adequacy, asset quality, management, earnings and liquidity) rating.
It meets all five regulatory requirements on liquidity, maintaining sound liquidity ratios.
Ali, who is also credited for turning the fortunes of Shahjalal Islami Bank and Social Islami Bank, said the bank's acceptability has enhanced. Many multinational lenders give cheap funds to UCB for it to lend.
The bank's business network has expanded in the last four years: it now has 168 branches and 165 ATMs, up from 130 and 81 respectively. The bank employed 4,152 people as of 2016.
Its global network has also expanded sizably through exchange houses and correspondent banking relations. It has 547 foreign correspondent relationships.