We want to introduce rural cards and microcredit

City Bank MD Masrur ArefinProthom Alo

Founded in 1983, City Bank Limited celebrates its 40th anniversary on 27 March this year. In an interview with Prothom Alo on the occasion, the City Bank managing director Masrur Arefin talks about the bank's aims, achievements and future plans

Q :

What was the context and aim behind establishing City Bank in 1983?

Back in 1972, the country's economy stood at a mere USD 8 billion (USD 800 crore). In such circumstances, local entrepreneurs and capital were required in order to invigorate trade and industry. There were 12 daring businessmen who took up the initiative to establish this bank. City Bank, the first bank in the country to get a licence, started out with a capital of Tk 34 million (Tk 3 crore 40 lakh). We certainly must name these businessmen on the 40th founding anniversary of the bank. They are MA Hashem, Anwar Hossain, Deen Muhammad, Ibrahim Mia, Azizul Haque Chowdhury, Abdul Hadi, Abdul Barik Choudhury, NA Chowdhury, Monowar Ali, AK Mahmud, Md Ali Hossain and ABM Feroz. The bank's first branch was inaugurated on 27 March 1983 at Bangabandhu Avenue.

Q :

What have the bank's major achievements been over these 40 years?

Our American Express card now holds the highest shares in the country's card business. In order to consolidate our capital, alongside Tier-2 bonds, we issued the country's first additional Tier-1 perpetual bonds of Tk 4 billion (Tk 400 crore). Later many banks followed suit to meet their requirements.

Another major achievement we have is the inclusion of the World Bank's affiliate IFC on the bank's board as an outstanding highest shareholder. Having IFC with us means our clients can have full trust in our good governance and discipline. And banking is all about clients' trust.

We have huge success in corporate banking. Over the past 15 years, 22 per cent of the power generation has been with our funding. Over 8000 persons work in our bank. That means 8000 families are dependent on this bank. That is significant.

Q :

In 2007 City Bank was identified as a 'problem bank'. How did it manage to turn around?

City Bank has huge achievements over the past 40 years. We are the first bank that has undergone a full-fledged successful transformation. Starting as a first generation bank, this bank did deviate and become a 'problem bank'. In 2007, the chairman back then, Aziz Al Kaiser, felt that the bank must go through a full transformation. The rest of the board backed him. A group of young bankers like myself, who had basically served in foreign banks, joined City Bank.

With approval of the board, and keeping the conventional corporate banking intact, we decided to build the bank up as a financial supermarket. Then we introduced the American Express Card, a new logo for the bank, retail loans, small loans and City Gem priority banking. Later we started City Alo women's banking and CityTouch digital banking.

Q :

It is because of the American Express brand that credit card means City Bank. You also have focus on retail business. How has the response been?

We have strong focus on retail business and credit cards. Around 3 million (30 lakh) clients receive our retail and credit card services. We have CityTouch internet banking where at an individual level, clients have carried out transactions of Tk 380 billion (Tk 38,000 crore) just through their mobile phones. This is a huge matter. In the past two and a half months where the deposits in many banks have fallen, our actual deposits increased by Tk 24.5 billion (Tk 2,450 crore), a large part of this being of individual depositors. This proves how much trust the people place in this bank. In this country of 100 million active persons, there must be banking facilities for all. Loans must be decentralised too or else risks will increase.

Q :

The SME sector is the lifeblood of the country's economy. Where does City Bank stand in this sector? And how are the entrepreneurs of this sector faring, in your opinion?

Our SME sector is divided into two separate parts -- medium enterprise loans, and small and micro loans. Our total loans in this sector stand at around Tk 80 billion (Tk 8000 crore). This includes Tk 45 billion (Tk 4500 crore) in medium enterprises and Tk 35 billion (Tk 3500 crore) in small and micro loans. After 2018, there has not been a single bad loan in the medium enterprise sector. With the various stimulus packages of the government and Bangladesh Bank, we will do even better in these two sectors.

Q :

How are corporate clients faring? How has the dollar crisis impacted their businesses? How can a solution be reached?

What with the economic recession in various countries, the Russia-Ukraine war and a variety of other reasons, trade and commerce hasn't been faring well globally. In Bangladesh, our corporate clients have been forced to go slow because of inflation, a collapse of the supply chain, a curb in imports and other reasons. The risk of banks recovering their loans is steadily increasing.

Despite the dollar crisis, we had a Tk 220 million (Tk 22 crore) current account surplus in January this year. That means we are turning around. For a permanent solution, export commodities and import markets must be diversified. Based on the amount of people who have gone overseas as workers, the country should be seeing remittance of USD 35 billion to USD 40 billion. This must be brought in. Money laundering in the guise of overseas trade must be halted completely.

The foreign currency exchange rate must be left to the market. The present governor of the central bank is working on this.

Q :

The central bank is adjusting the interest rate on loans. How will it be if the interest rate goes up or down along with treasury bills or bonds?

The central bank is fixing a market-based reference rate which will be based on risk-free sovereign investments, or treasury bills or bonds. It is heartening that like SOFR or LIBOR, our financial market will also have a benchmark rate, based on which the banks can fix their deposit and loan interest rates. The benchmark rate is a risk-free rate. As City Bank has a sound reputation, it will pay lower premium on bringing in deposits. Banks with a poor reputation, will have to pay higher premium. But the challenge in determining the benchmark rate is that the treasury bench or bond rate must be market-based. If the regulatory body intervenes too much, the expected results will be affected.

Q :

The banks are providing long-term loans on short-term deposits. As a result, the loans are going into default, according to the governor. How can this be reduced?

It is true that the banks, having no alternative, are providing long term loans against short-term deposits. The source of long-term deposits is the bond market, which is almost non-existent in our country. Actually bank liquidity risks do not play that much of a role in loan defaults. At the root of default loans is the culture of pressure on the bank boards to provide loans to certain entities remaining unnamed, and also a lack of accountability. Strong risk management can be taken up to reduce the default loans, but at the same time, it is important to capacitate business establishments so they can tackle the overall economic challenges. It is imperative to listen to the businesspersons now before drawing up the budget. It is important for the revenue department and the finance ministry to listen to what the trade bodies want to say.

Q :

Where do you want to see City Bank in the days to come? What have the achievements and plans been during your time with the bank?

Before I joined as MD, the bank's total earnings had been Tk 16.25 billion (Tk 1625 crore). In four years that has gone up to Tk 25.25 billion (Tk 2525 crore). At the same time, the bank's running profit increased from Tk 6.68 billion (Tk 668 crore) to Tk 11.83 billion (Tk 1183 crore). And City Bank's net profit has increased from Tk 2.02 billion (Tk 202 crore) to Tk 4.74 billion (Tk 474 crore). Our top officials are the cream of the banking sector. And more important than that is, we have a farsighted and professional chairman. No one on our board till date has asked to provide loans to anyone, in name or under any other name. Such good governance is a dream in Bangladesh's banking culture.

Based on that, we want to move ahead towards more rural-oriented and micro-loan business. It is my dream to establish City Bank as a 100 per cent digital, green and sustainable bank. I want to generate more profit to achieve the financial capacity required to materialise that dream. More profit means adequate capital and the financial capacity to offer new and more services to the general people. More profit also means paying the government more revenue. If the government gets that through the banking sector, then this will somewhat meet the moral responsibility of our bankers. The time has come to fix the ethics of this sector.

Q :

The interest from deposits isn't sufficient to tackle the inflation. What is to be done?

This will not be fixed in the normal manner. When the interest rate on deposits is lower than inflation, deposits fall. If inflation is 5 per cent and interest rates are 5 per cent, then after one year a person can make the same purchases with 100 taka. But if the inflation is 10 per cent, then one year later there will be a shortfall of 5 taka to buy commodities with 100 taka. It is the responsibility of the central bank to ensure that the depositors get that 5 taka. It would also be all right if the prices of the products went down by 5 taka, but the central bank has no control over that. So a monetary policy must be put in place to lessen the depositors' consumption and encourage them to save their deposits.

The world over, the most popular and effective way of curbing inflation is to reduce liquidity in the market and increase interest rates. But all said and done, when I look at the inflation rates in other similar status countries, I feel at peace.