ABB President Ali Reza Iftekhar regrets declining merit and ethics despite the entry of a new generation into the industry
By Ashraful Islam
Translation and planning by Khawaza Main Uddin
The recent scams in the banking sector are the hallmark of degrading values and ethics in individual practices and governance in the banking sector; admits the President of Association of Bankers, Bangladesh (ABB) saying that the revelations of fraudulence have affected the entire banking sector and damaged the country’s image. Ali Reza Iftekhar, also Chief Executive Officer and Managing Director of Eastern Bank Limited, emphasises the need for building human resources instilling values and ethics in them alongside ensuring reward and punishment to improve the situation.
In an interview with ICE Business Times, he expressed his conviction that Bangladeshi banks have enormous scope to diversify their services and serve the clients in a number of ways. As the banking sector is sitting on excess liquidity, he thinks, money will not be a problem if investors come out of the shell of their ‘wait and see mood’.
How have been the generational changes in Bangladesh’s banking sector, both in terms of entry of new bankers and arrival of banks, that you have noticed from inside?
Yes, people of new generations are coming in every 3-5 years. But unfortunately, in terms of quality, there is no significant improvement. Rather we have witnessed a decline in the merit of new entrants compared to older generations. I would assume if the number of meritorious jobseekers was 90 out of 100, that now has come down to 20 in 100. I have made this comparison based on education, creativity, aptitude and all that. However, the only advantage the new generation people have is that they are IT-savvy in general.
On the other hand, new banks have also joined the market but it is old wine in new bottle. We don’t see any change or improvement in management as new banks have hired or are hiring the people trained by old banks as a quick-fix strategy. Some relatives and admirers of the directors have also been accommodated as employees of the new banks.
What is your evaluation of monetisation of the national economy, especially integration of rural, informal and non-formal sectors with the mainstream economic activities and the banking sector?
Thanks to the financial inclusion, the information about the financial world has now been more available. We have seen growth of mobile banking and agent banking that have brought banking services to the doorstep of the rural people. Bangladesh Bank, too, plays an important role in this regard but we should also remember that mere administrative impetus is not enough to expand financial services. Of course, there is scope to bring more people under the banking coverage. I don’t think mere GDP growth will help the poor to come out of economic hardship; we must try to keep the inflation in check, and banks should be allowed to offer innovative services, such as insurance and sales of mutual funds, for the benefit of both the people and banks.
Do you think the country is still vibrant for banking business, as the growing economy with a rising middle class offers opportunities?
Banking business is not in a very good shape at the moment, although it was supposed to be vibrant. Banks’ non-performing loans have increased and income has eroded, especially net profit (after paying tax) has declined. A 1% increase in NPL means loss of Tk 300-400 crore from income. Even with increasing operational profit, banks lose capacity to provide dividends.
Where are your bargaining points/issues with the government, regulators and bank owners when you represent ABB?
From the government we expected that the corporate tax being paid by the banks at a rate of 42.5% would be reduced to 40% initially but nothing was done in the budget. This should be reviewed as nowhere in the world is there such a high rate of corporate tax. This is clearly discriminatory and not sustainable in the long run. We also feel that ABB should be consulted before issuance of ‘major circulars’, if not all, by the central bank so that there is policy consistency and banks can implement them. We at ABB also need to be more active. I strongly believe that the separation of role played by board of directors and bank management as guided by Bangladesh Bank’s regulations should be maintained properly for the sake of protecting interests of the clients. Good governance cannot be ensured only by laws but by means of ethical practices within the organisation.
What are, in your views, main challenges of investments these days?
We see positive indicators in the financial sector, but investment remains sluggish. There is no movement visible across industries for expansion or setting up of new units, except a few sectors like power and some infrastructures. Investors are apparently watching the situation with a ‘wait and see mood’. We don’t see much import of capital machinery as reflected in the import statistics. This has been a major challenge for the country because unless you make investment in the manufacturing sector, you will not be able to create employment opportunities, and unless you provide people with jobs, the country’s development will not be possible. I think, we must promote manufacturing industries by providing series of incentives and discourage trading that does not create much jobs.
The banking sector is sitting on huge liquidity. Would you share your thoughts what best could banks do to invest the idle money?
Huge liquidity could have been a blessing, has there been higher demand for investible loans. It’s been rather burden for the sector for banks have to manage the funds in a cost-effective manner. So, despot rates have been cut to reduce operational costs and thankfully we are reducing the lending rates as well. Currently, banks are not collecting money due to lower demand and once demand increases we are in a position to collect huge deposit and disburse among the investors. I am, however, concerned at the fact that the government might borrow a lot of money from the banks. This may have negative effects for the banking sector and eventually the investors.
Given the recent scandals affecting the banking sector, what kind of effects are you expecting in the coming days and how would you take remedial measures?
We the banks are really ashamed of the whole affair. The Sonali Bank’s scam or Basic Bank’s forgery for that matter is not affecting only them, but the entire industry. This shows serious degradation of values and ethics in individual practices and governance in the banking sector. The revelations of fraudulence have also damaged the country’s image abroad. The Sonali Bank Hall-Mark scam was recently presented as a (failure) case study at California University, Berkeley. This has also increased operational risks. I think, the banks need to ensure reward and punishment for the performance of the bankers. We need to build human resources instilling values and ethics that are stronger than rules and regulations.