Bangladesh Bank has emphasized the implementation of deposit schemes on a half-yearly basis. Do you offer any monthly, double benefits or any other form of beneficial schemes?
We appreciated the decision of Bangladesh Bank because as Financial Institute, we provide our maximum loan products on a mid-term and long-term basis for this reason three months or short-term deposits make a huge mismatch with our lending products. If we collect deposits on a long-term basis, then between the fund inflow and outflow will be lower possible to mismatch. Long-term deposit and long-term lending will lead to a better position. As FI we have no CASA (Current account and Savings account) but Banks have and that is a huge advantage for them. So long-term deposit is good for us. However, in Bangladesh, most of the customers want a short-term deposit, like three months. Earlier at FI, the shortest term for deposits was one year, but then it was made in six months and in the lastly, it became three months. But we are not really focused on three months. We prefer double money, triple money, and long-term deposit. But as per customer needs, sometimes we accommodate three months. We have five types of basic deposit products.
• Fixed term Deposit: We have four types of fixed-term deposit, they are Classic, Shohoj Sanchoy, Quick Sanchoy, Double money and Triple money. In classic scheme you can deposit money for a period but not less than 3 months. Another is the double money, in six years your money will be doubled. Triple money is the same but for nine years.
• Quick Sanchoy: In this Scheme, your money will be doubled and tripled within shortest possible time. It is a combination of Term deposit and monthly saving scheme (DPS). Like; initially depositor will deposit Tk 1 lac and will pay monthly Tk. 2,000 and his/her money will have doubled within 2 years 6 months.
• Shohoj Sanchoy: You can keep any amount of money at any time, then you’ll get the interest on a monthly basis.
• Earn First: In this scheme, you can deposit Tk. 1 lac for one year, but you’ll get one-year interest upfront. Your principal amount is secured with this upfront interest.
• Periodic Return Term Deposit: This is actually a monthly deposit scheme. You will get monthly, quarterly or half yearly interest. This scheme is fit for those customers who really want to keep the money at Bank or FI and spend their interest for family purpose.
• DPS: We also have DPS where people mainly keep small amounts monthly basis. They keep the money for five, six or ten years and get a substantial amount after maturity.
• Flexi Deposit: In this scheme, you can deposit money any time and you will get the interest on a daily basis but you cannot encash before three months, if you want to encash then you’ll get premature interest rate.
What are the offers, and services are you providing to entice customers towards these schemes?
We provide customers with the following offers:
• Better Return: We offer customers better returns of their money.
• Ensure Security and safety to the deposit: After deposit, they will be returned your money as per request and ensure the security and safety to meet the customers’ future dreams.
• To meet Future Dream: The customer deposits money in order to fulfill their future dreams. For example, a customer deposits an amount for six months, one year, two years because he plans on buying an apartment or a car in the future.
• Capital Formation: For capital formation, there are many customers who have money they want to capitalize with interest. They want to double or triple the amount or three-month with auto-renewal.
We couple that with unique services such as our door-to-door service. We provide this in the apartment complex, RMG sector and in the clinics and hospitals premises.
We contact the owners’ association first, and on a weekend our team goes there and run a campaign program. Our deposit statements and SMS are given to consumers at free of cost. There are no account opening or maintaining fees; clients simply fill-up a prescribed form, complete the payment and it’s done. We have mobile Apps called FinSmart all depositors want to see his/her balance. We also have a call center and online services for those who want any time information /balance/ statements through their mail. We have a wide collection network. Depositors can easily deposit their money through all Branches of our two dedicated bank accounts or bKash, SureCash or UCash. We have a home delivery service for clients also.
How are you marketing and communicating this scheme to consumers?
We have dedicated around 30 relationship manager and 300 plus product marketing officers for deposit collection. LankaBangla securities, LankaBangla investments and LankaBangla Asset Management Company are our subsidiaries. We are cross-selling through these subsidiaries and our asset products clients. Our corporate campaigning is targeted at organizations such as MNC and LLC. We campaign among professionals like; ICAB, ICMAB, Teachers, and Doctors; this includes offering them a premium rate and free membership credit card also.
What will be curbing aggressive lending do for Bangladesh’s economy? How do financial institutions plan on reclaiming loans that are overdue?
If lending is done to a creditworthy borrower after applying for appropriate credit due to diligence and prudent judgment, then it is considered appropriate lending practice which should result in a favorable outcome for the company as well as for the economy as a whole.
But aggressive lending implies that limited financial resources are not allocated properly where the lending decision is essentially driven by fleeting factors like market competition fuelled by target whereas too many lenders are chasing relatively too few borrowers and overemphasizing short-term outcome, lenient underwriting standards among others.
Obviously, the economic implication of the misallocation of resources is always unfavorable. As lending is a forward-looking business, a myopic strategy most likely brings undesirable consequences for the financiers and aggregately for the economy. Aggressive lending practice is a costly trade-off between growth and sustainability. Aggressive lending is not a viable option for any financiers in the long term.
As such curbing aggressive lending should contribute greater long-term sustainability of the FI as well as the economy.
Every financial institution has their own policy to reclaim overdue loan, LankaBangla’ s includes a strong monitoring and continuous follow-ups. We have a dedicated, strong, professional recovery and collection team to oversee that these transactions are running efficiently.
We review our overdue files to monitor the following:
• Persuasion and negotiations- Most of the time we personally visit the SME, Retail and corporate client for negotiating and to realize their problem and try to solve the valid problem. We give the time to the client to solve the problem within the regulatory frame line.
• Legal action promptly- We try to negotiate till the last but when we can’t then we take legal actions also engage Third Party recovery agent.
Do you believe that futuristic technology, for example, Blockchain can be a solution to the challenges that come with deposit schemes?
The successful adaptation and operation of any new technology are dependent on the appropriate management and the risks associated with the technology. This is especially relevant when the technology is more than an application and is a part of the organization’s core infrastructure like Blockchain. There are numerous points that need to be addressed in order to see this proliferate, they include:
• Decentralized Trust: The primary advantage of Blockchain is its method of verifying and tracking transactions, it enables individuals and organizations to process transactions without the need for a third party or a central bank.
• Enhanced Security: Once data is recorded in a block, it cannot be altered retroactively, this makes blockchain inherently secure. Since it is shared by a large number of users, it is difficult to shut down or hack and can be viewed by anyone using the system.
• Decreased Costs: By leveraging the distributed ledger approach to form a system that decentralizes trust, banks/FIs are able to decrease transaction fees significantly by eliminating third-party intermediaries and overhead costs for exchanging assets.
• Increased Efficiency: Blockchain eliminates the risk of error and duplication and is consequently ideal for refurbishing a range of digital processes. The removal of intermediaries reduces the settlement time to mere seconds and the transaction time to minutes. It also enables transactions to be processed 24/7. These technologies require appropriate management and a professional team to be efficiently handled.
Last year saw a number of incidents disturbing the trust of depositors’ who might think that their money is not safe in the banks. How are you trying to convince your customers about the safety of their money while encouraging them to deposit?
With events such as Hall Mark, Bismillah Group, Basic Bank, and Farmers Bank, the depositor’s trust are not as strong. These need to be remedied immediately before these perceptions become irreparable. Nevertheless, I think the customers still trust us, believe us and for this reason, our deposit increased compared to last year.
Customers believe us because of our professional team approach and our Brand image, well-structured and financial strength. In the last six months, we provided faster service in case of any type of encashment. LankaBangla is the only FI in Bangladesh, who provides credit card facilities and we are the fourth largest credit card issuer in Bangladesh.
Our noteworthy portfolio and rapid services speak volumes about our dedication.
We have a doorstep service and we maintain a strong relationship with our existing customers. Our aim is to forge a relationship and not just sell rates. We are the number one in capital market and we have huge customers base which helps depositors to build trust on LankaBangla. We believe that our customer is our brand ambassador.
Through our dedicated and professional sales force, we are able to easily convinced our customers. We encourage our asset coordinating officer for collecting the deposit as asset lending was slow to compare the last year for volatile money market.
We save depositors time, money, energy and also successfully returned the money at the time of encashment and giving after sales service. These types of services make the customers happy and satisfied with LankaBangla and finally, our customer speaks for us.
Bangladesh Bank has emphasized the implementation of deposit schemes on a half-yearly basis. What are the offers, products, and services that you are providing? Do you offer any monthly, double benefits, or any other form of beneficial schemes?
I am very happy to mention that, IPDC deposit structure showed a greater reliance on term deposits that contributed to financial stability. A well-diversified deposit base in IPDC indicates a sign of resilience in the system. Financial Institutes (FI) usually transform short-term deposits into long-term loans. This mechanism makes FIs vulnerable to various risks, including liquidity risks and capital adequacy risks. Besides, their increasing reliance on borrowing has made them more vulnerable to funding risk. The source of liquidity is the most important part of creating and capturing a secured and sustainable deposit portfolio.
At IPDC, we always try to offer an annual/quarterly/monthly profit scheme to make customer’s life more convenient and maximize their return. Furthermore, customer’s money can grow with our Cumulative Profit Scheme by capitalizing annual interest for another two or three years and the proceeds will be paid back to the customer at maturity. Moreover, IPDC has wealth builders’ schemes where an installment-based scheme offers customers the means to become a millionaire by using small investments spread over a specific time period. However, the customer can also choose the option and save a little portion of their income through our Deposit Premium Scheme. The customer can also double their money after a specific period through our Double Money Deposit Scheme.
IPDC also has a unique scheme product named Ultiflex Deposit Scheme which offers ultimate flexibility for customers. One can deposit any amount at any frequency at any date; there are no penal charges for payment delay in installment in Ultiflex scheme since no stipulated time period for installment payment. Ultiflex scheme also allows up to 25% withdrawal of deposit only once during the tenure. In the time of fast cash, requirement customers have the option to avail loan up to 90% of the deposited amount against lien on the deposited amount. At present, the service quality of IPDC is an important factor to survive in the competitive markets.
How are you marketing and communicating these schemes to customers? Given that deposit schemes may be complex for clients to understand, do you have an introducer within your institution?
For a high involving product like deposit schemes where the barter is not just in cash but trust, it is very crucial for the marketer to impart the very knowledge of the offering in the initial stages of one’s understanding.
Considering, the abundance of competitive yet redundant offerings from banks and other NBFI’s, IPDC takes the leverage of accenting the mere spirit of living unbound through financial inclusion.
Through a flamboyant mode of communication in social media targeting the Millennial instead, who are self-expressive, liberal and receptive to new ideas and ways of living. IPDC blends its communication by nurturing their expectation from a brand in order to make it the only favorable choice at their disposal in the future.
From designing day specific deposit campaigns (for example 10 mash 10 Din deposit campaign on Mother’s Day), or backing the strong-willed efforts of different universities across the country, to having the passengers bombard with the IPDC offerings in domestic airport. We have taken the leap and bound in terms of marketing and communication to connect with its potential clienteles specifically after its grandiose revamp at the end of 2016.
We have one of the strongest corporate portfolios among other NBFIs. This can be leveraged by means of micromarketing activities at corporate houses to create and capture a secured and sustainable retail portfolio. Moreover, IPDC does a strategic partnership with corporate houses through special service offering to its employees. It has also established a strong presence on social media to communicate its products to potential customers. Knowing consumer trends will help us understand how to position itself in an increasingly mobile reality. Advertisements are also posted in newspapers for maximum outreach.
IPDC’s ability to provide extraordinary customer service experience will strengthen its image to existing customer base; enhance retention of customers, attracting new potential customers through existing customer reference and customer loyalty programs. Though delivering superior service quality to customers in today’s business environment is very crucial and important due to the stiff competition in the financial industry. While most banks offer similar commodity type products in the Retail business, we are combating with Banks in most cases on price/product features/turn-around time (TAT) which differentiates itself and gains ground on new entrants.
How has dropping the ADR percentage by 1.5% benefited financial institutions?
Liquidity stress was a burning issue throughout the first two quarters of 2018. From the beginning of 2018, it has been easing down due to the fact that credit growth has decreased. This trend continued in the second quarter as well. BB is currently measuring the advance to deposit ratio (ADR) as a gross measure to calculate the liquidity condition prevailing in the economy.
The main function of the FI’s business is to attract deposits from household and offer credit to businesses and make a profit from the spread of interest. Deposits are the main sources of funding for financial institutions in addition to the capital, reserves and bank borrowings. The ADR is, therefore, a useful indicator of the adequacy of a financial institution’s liquidity in Bangladesh. The smooth operation of FI depends on how efficiently they can make use of this fund and pay its liability accordingly. Dropping the ADR percentage by 1.5% decreasing call money rates indicates that the financial industry is currently having substantial liquidity. The call money rate declined compared to the first two quarters of 2018, after which it fluctuated marginally in the last two months. This low call money rate and a reduced amount of call money borrowing indicated that the FIs were able to ease down from their earlier condition of liquidity stress.
What will ‘curbing aggressive lending’ do for Bangladesh’s economy? How do financial institutions plan on reclaiming loans that are overdue?
To some extent, Aggressive lending may help quickly capture market share and drive FI’s profitability; in reality, the success of FI in the long-run depends on ensuring that they lend to the right clients. Most of us are aware of the negative result of aggressive growth in the lending portfolios among the financial institutions. There have been complaints that FIs are lending to large-scale businesses while the small and medium enterprises are ignored. The NBFI sector registered a positive and notable growth, though the asset quality deteriorated. Due to a worsening of asset portfolio quality, capital ratios for the NBFIs slightly decreased compared with that of the previous year, the disproportionate increase of risk-weighted assets compared with total eligible capital.
The success of FIs in the long-run depends on ensuring that they lend to the right clients. IPDC has the practice to collect valuable data about their lending customers starting from sourcing and the target markets in which they operate. This data includes customer demographics, customer psychographics, historical and current banking trends, historical and current financial statements, monetary service needs, specify the purpose of financing, business activities and plans, market trends and norms according to the geographic area, as well as probable risk indicators. Moreover, stress testing is a regular practice of each retail lending customer before sanction any retail loan to adjust the probable risk associated with a change of customer profile. Control and regulation of such behavior and strategies from FIs will benefit the overall financial sector of Bangladesh. Our good governance has enabled us to have one of the lowest NPL ratios among the FIs in Bangladesh.
To maintain a healthy asset portfolio, we do not use the strategy to source lending business through walk-in customers. We have strong channel management capacity through a strategic partnership with a corporate house, a real-estate developer, reputed cement company and auto vendors in the market. Collaborating partners get a package deal for their customers where both of us can provide nationwide coverage using our combined resources. Partners assist IPDC in establishing a presence in the selected dealer’s outlet and recommend customer to avail IPDC’s product and services. In that way, IPDC can reach to the target segment customers through strategic marketing collaboration as partners which also give IPDC access to dealers and share relevant market potential data.
Remedial actions need to be designed to steer the portfolio from further deterioration by interim detailed review note to manage overdue prudently. Skip tracing of overdue customers should be linked up the process of locating the whereabouts of the borrower whose contact information is not immediately known as per the existing database. IPDC uses strategies that are convenient to both the clients and the company itself when recovering overdue loans.
We maintain rigorous MIS by aging buckets for the front end (1-29 days past due), mid-range (30-59 days past due) and hardcore (60+ days past due) for overdue accounts under Retail Collection. Hardcore difficult accounts (90 days past due) are transferred to the Special Asset Management team for taking stronger recovery strategies and legal actions. It is not impossible to integrate making it quite a challenge to obtain a complete picture overdue portfolio while data is saved in several independent data silos rather than having a centralized data repository to manage overdue prudently. FIs struggle to find appropriate detail information captured while collection team meets retail recovery customer as they face the threat while their professionals leaving the company.
At IPDC, we maintain centralized data repository for each overdue account after discussing at each point with customer and RM assist collection team in selecting risk scoring methodologies most appropriate for the types of data that have been captured to avoid further deterioration of the quality of account. Furthermore, the more data captured for the individual account, the more extensive the analyses may be to manage retail overdue. The centralized process to manage overdue from the first installment improves data quality and accuracy as it maintains the history and reduces time-consuming updates and redundancies for taking recovery steps at the right moment.
Given that deposit schemes may be complex for clients to understand, do you have an introducer within your institution?
We have our Relationship Managers who connect with the customers and they are here to assist our valued customers in any sort of service regarding deposit or loan. These Relationship Managers decode the scheme proposals in a way that customers can understand. We have taken a number of initiatives to develop our Relationship Managers who reach out to potential customers. These initiatives include continuing career counseling, relationship skill development, education and on the job training and career development. At present, the service quality of the financial industry is an important factor in order to survive in the competitive markets. There are prerequisites to receiving quality services in the financial industry which include the placement of the right people with relationship skills, sales skills, abilities and right knowledge of financial products and services, in offering services to clients which have a direct positive impact on retail customer services.
Do you believe that futuristic technology, for example, Blockchain can be a solution to the challenges that come with deposit schemes?
It can be a solution. Initially, we are trying to implement Blockchain Technology in Supply Chain Financing. We are currently doing the entire processing of Factoring Financing through manual intervention which needs a hefty amount of time. From verifying the documents to processing the disbursement, the whole process in the manual system takes a few days to due to these barriers. Our valued customers will be glad to know that, we are working on developing a new system of overcoming these barriers. We are excited to use Blockchain technology as the platform for this system. To achieve the process efficiency, we have been working on developing a digital platform for the entire supply chain finance processing. In the future, we might include the deposit scheme procedure using Blockchain Technology. Through this inclusion, customers’ all the transaction & other procedures will be online and transparency will be ensured.
Last year saw a number of incidents disturbing the trust of depositors’ who might think that their money is not safe in the banks. How are you trying to convince your customers about the safety of their money while encouraging them to deposit?
First, let me share some of the most recent stats of our company with you. During the first quarter (January-March, 2018) our company achieved 14% growth and the second quarter (April-June, 2018) will hopefully witness a similar growth. According to the unaudited financial statement of Quarter-1, IPDC Finance earned Tk. 71.99 million as net profit against Tk. 62.95 million of the previous year (2017). The total provision was Tk. 18.34 million in Quarter-1 against Tk. 25.34 million of the corresponding period of 2017. These stats reflect the success even when there is a liquidity crisis are present in the market. We have a strong and loyal customer base in IPDC Finance.
Still, we are not outside of the market. I can’t say that we are unaffected by deposit crisis. Even, you may have heard that many NBFIs stopped disbursement. Nevertheless, we can proudly say that we did not stop disbursement for a single day. We had to take a different route to mitigate the liquidity crisis and simultaneously, ensure the sustainable business development of IPDC. We have the least Non-Performing Loan ratio comparing to other NBFI’s and this obviously created a confidence amongst our valuable customers regarding the safety of their money.
