Sherpa Hossainy's Blog

Tumbling taka hurts gold business

Posted in Bangladesh, Business, Dhaka, Economy, Industries by Sherpa Hossainy on January 24, 2012

Published in The Independent on 19 January 2012

Read the article in Independent website

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The country’s gold industry is going through a lean patch as flagging taka against dollar forces gold traders to push the item prices up, consequently driving the buyers away.

Gold is already trading higher in the local market than the global level, but the perpetual decline of taka is pushing the gold traders into a quandary as customers are averse to buying the precious metal at a higher rate.

“Gold prices should not be this high. But as taka gets weaker we are paying more for gold purchases and this is forcing us to hike the prices,” said Dewan Aminul Islam Shahin, general secretary of Bangladesh Jewellers Samity (BJS).

According to Bangladesh Bank, in the last one year alone taka devalued 15.43 per cent against the greenback. The dollar was trading on Wednesday at Tk 84.05 whereas it was around Tk 69 a year ago.

“It wouldn’t matter if the international gold price remained constant. Now we are paying Tk 12-14 more for every dollar than what we paid a year ago,” said Shahin.

After the historic rise of gold in the international market in mid-August last year, amid the Eurozone debt crisis, situation eased at the year-end. Gold crossed $1,800 per ounce [1 ounce = 31.1034768 grams] in mid-August, while in December it came down to $1,540 per ounce. However, since January gold prices started to shoot up again and on Tuesday gold traded at $1,630 per ounce.

In the course of this rising trend, BJS, the country’s largest gold traders’ association, is set to take the gold prices up again. The 35-member executive committee of BJS will sit  next Tuesday to decide the hike. “If majority of our members opine for a price increase we will implement it immediately,” the BJS general secretary said.

The latest price hike happened only last Saturday (January 14) where the price of 22-carat gold was increased by Tk 1,513 per “bhori” (local unit of gold measurement, 1 bhori = 11.664 grams). The prices of 18-carat, 21-carat and traditional gold were increased by Tk 1,222, Tk 1,397 and Tk 1,280 per “bhori” respectively.

After the hike, the prices of gold stood at: 22-carat Tk 56,454 per “bhori”, 21-carat Tk 53,888, 18-carat Tk 46,189, and traditional gold Tk 35,109 per “bhori”, according to BJS.

In India, gold prices continued to move up to new highs well beyond September and into December 2011 mainly because the rupee depreciated sharply against the dollar. In early December, spot gold in Delhi market hit a record high of Rs 29,540 per 10 gram. The rupee had moved down to around Rs 54 per $1 in December.

According to the World Gold Council, sharp volatility in gold prices and inflation do impact discretionary spending.

“When the gold price crossed the Tk 25,000 mark we started losing business as the customer base shrank,” Shahin said.

Very few customers now buy gold, and this is also confined to wedding occasions. No one wants to buy gold now unless it is mandatory, he said.

However, the traditional gold buying for wedding ceremonies is also hit by the rising prices, especially the middle-class is suffering the most. “A few years back, you could buy a whole set of jewelleries at Tk 50,000. Now you have to spend six times more just to get a bare minimum of five ‘bhoris’,” Shahin said.

The reluctant customer base is also forcing small jewellers to shut down businesses even amid the “wedding season”, which otherwise usually buoys the market. Dilip Roy, president of BJS, said, “20 per cent of the small shops have closed down now and the overall business is halved.”

Roy believes formulation of a gold policy can make this wobbling situation change. “If there was a gold policy, we would be able to buy gold from Bangladesh Bank. Then the price fluctuation in the international market would have a much lower impact,” he said.

In April, the ministry of commerce formed an inter-ministerial committee after receiving a letter from the BJS seeking formulation of a gold policy in three months. The committee then decided to make a jewellery industry policy, under the supervision of the industries ministry, immediately after formulation of the import policy, which will allow Bangladesh’s jewellery manufacturers to purchase gold through proper channels.

However, the progress following the formation of the committee has been sluggish, making matters much worse, Roy lamented.


State-run banks losing shine in export financing

Posted in Bangladesh, Banking, Business, Dhaka, Export and Import, Finance by Sherpa Hossainy on January 4, 2012

Published in The Independent on 4 January 2012

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The state-run banks are becoming a lacklustre option for export financing despite the fact that they offer lower interest rates and have better access to funds, exporters say.

Exporters nowadays are rather opting for private commercial banks, which provide fast and well-organised service, while the government banks are fraught with inept and complex procedures, bureaucratic red tapes and sluggish service. However, exporters still rely on state-run banks when it comes to big volume financing as arranging vast amount of cash is often hard for private banks.

“The processing of simple loan applications in state-run banks is very lengthy and it’s difficult to go through all the voluminous paperwork,” said Abdus Salam Murshedy, president of the Exporters Association of Bangladesh (EAB).

The EAB chief said the state-owned banks played an extraordinary role in industrialisation and export financing during the 80s and 90s but couldn’t keep up with the changing needs of exporters and struggled to provide efficient service.

“The private banks slowly took over the financing of export-oriented sectors because of their superior services. They also maintain better customer relations,” Murshedy told The Independent. The state-run banks are performing poorly in industrial loan recovery, he added.

The private banks’ top-notch service and hassle-free financing had made an increasing number of exporters move away from state-run banks.

Anowarul Islam, a garment exporter, said, “Private banks have state-of-the-art facilities and they are proactive in communication. Opening letters of credit and availing loans are much easier in private banks.”

The state-run banks, on the other hand, claim that they are providing better facilities such as lower lending rates and easy access to loans.

Md Abdur Razzaque, assistant general manager of Foreign Trade Department of Janata Bank, said, “State-run banks’ interest rate for exporters is 7 per cent, while the private banks charge 18 per cent. We have no extra fees and ‘hidden charges’ like private banks.”

Razzaque said private banks are reluctant to help small clients and state banks are still the solution to  them. He said the regular collateral ratio is 1:1.5, but for exporters it is either 1:1 or collateral-free.

He said the state banks are serving a big customer base and that could sometime lead to slow service. “If a private bank serves 10 clients, we serve 110. They have a selective customer base, we serve everyone,” Razzaque said.

Razzaque said state-run banks are working in line with the government’s export policy and give highest priority to the export sector. The state banks arranged quick cash during Eid for the garment exporters to pay their workers which helped avert labour unrest, he added.

Financing exports at a subsidised rate also makes it hard for the state-run banks to make any profit. “Sometimes we even make losses, but we are following government policy to help exports,” Razzaque said.

However, private banks defended their high interest rates, citing rising inflation and monetary policy pressures. “On top of the inflationary growth and tight fiscal policy, we have to think about availability of funds and the costs of running an operation. If you consider these things I’d say we are not charging high interest rates,” said Muhammad A (Rumee) Ali, chairman of BRAC Bank.

Murshedy said state banks can afford lending at a lower rate because they face much less liquidity crisis and get big funds from the government. “The private banks collect money from the public and they have a much higher risk factor,” he said.

He, however, said, “When it comes to big loans, there is little to do but to go to the government banks. Private banks have to form consortiums to put together such big amounts.”

At present, the government under the Export Credit Guarantee Scheme provides Export Credit Guarantee (Pre-shipment), Export Credit Guarantee (Post-shipment), Export Payment Risk Policy (Comprehensive Guarantee) and Whole Turnover Pre-shipment Finance Guarantee, covering risks on export credit as well as probable commercial and political risks occurring abroad.

The government also provides loans and venture capital on easy terms and low interest rates from the Export Promotion Fund (EPF) for the exporters. The Export Policy 1997-2002 also ensured incentives such as rebate on insurance premium, income tax rebate on export earnings, duty drawbacks, tax holiday and cash subsidies.

Financial inclusiveness should be banks’ target

Posted in Bangladesh, Business, Corporate, Dhaka by Sherpa Hossainy on January 2, 2012

Published in The Independent on 1 January 2012

Read the article on Independent website

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The country’s private banks should strive to serve the masses and promote financial inclusivity to bring them under a common economic system, said Muhammad A (Rumee) Ali, chairman of BRAC Bank. In an exclusive interview with The Independent, Rumee focused on the current banking sector scenario, and his bank’s service strategy, small and medium enterprise financing operations and its impending customer-centric banking model.

Muhammad A (Rumee) Ali, chairman of Brac Bank Ltd

What are the new products or services of your bank?

Brac has a subsidiary called “bKash”, which is our mobile banking wing, and this strategic investment intends to promote financial inclusivity for the masses. Opening bank accounts for bottom-of-the-pyramid people is difficult. They hesitate to come to a bank, and for them it’s a costly affair. For the real masses mobile banking is the answer because it opens new doors towards inclusivity. If you don’t give financial inclusivity to everyone it creates contradictions within the society. For people who can read and write and have fair knowledge to open a bank account we introduced the Access account, which is a no-fee account where people can easily access a bank account without going to banks. We serve them through our ATMs, where both the cash withdrawal and deposit can be done.

What is the overall performance of your bank?

BRAC Bank performed very well last year despite several constraints in the financial industry such as liquidity crisis and the stockmarket issue. The bank  successfully increased its book in terms of lending to the small and medium enterprises (SMEs), which is our main focus. The customer base significantly increased last year, which is now more than 1.5 million. We have also done some non-financial initiatives to promote financial inclusion such as Krishok card for farmers. We also introduced Probashi banking card for people who receive remittances.

What is your target for the next year?

We are planning to launch a new retail banking model, which concentrates more on customers rather than products. We have now put a team together and changing the existing model into a customer-based model. At the end of the day you are dealing with people, not with products. Products should be for people, people should not be for products. We’ll keep on pushing the same strategic issues and objectives to promote inclusivity and make finance more accessible to SMEs. But BRAC Bank is a full service bank so we want to give good products in the consumer banking sector and continue providing the best service to our corporate customers.

What do you think about spreading banking services to the people who are not covered by a bank?

BRAC Bank promotes financial inclusivity and that is why we are an SME-based bank. Traditionally small businesses have been out of the banking system and we are trying to bring them in. In every country, small and medium businesses drive the economy. The central bank in Bangladesh is already focussing on this but we need more traction. More banks need to get involved with small businesses. We are the pioneer and the leading bank in the country on small businesses and through bKash and Access accounts we are reaching out to the ‘unbanked’.

What about the rural banking services? How many branches of your bank are located in the village areas?

Sixty per cent of our branches are in rural and semi-urban areas and 40 per cent are in urban areas. I think BRAC is the only bank with this ratio in Bangladesh, except for state-run banks.

What is the uniqueness of your bank?

BRAC is perhaps the only bank with a specific mission and that is to support or create access for the SMEs. Other unique feature of the bank is that 60 per cent of the advances are in semi-urban and rural areas. Our branch and distribution structure is also unique.

What are the CSR activities of your bank?

I’ll start by saying that BRAC Bank itself is CSR. We are a bank with a mission. We promote financial inclusivity and we are looking at small businesses, and this is Corporate Social Responsibility (CSR) in its own. Besides, we are involved in many CSR activities, especially education.

Do you think there is any necessity of new banks?

If the question is approached from the point of view “are they serving the people?” or “are they getting more people involved in the banking system?” I think the banking industry has actually fallen short of expectations. If someone argues from that point of view that we don’t need any more banks, one has to agree to it. On the other hand, I think central bank should help   banks promote inclusivity. There are 45 banks in Bangladesh and from this point of view I don’t see any further need for banks but I think the emphasis should be now on the banks to move out and get more people involved in the system. That is where the regulators and the government should be pushing the banks. However, there is always a need for specialised institutions. If a group or bank can come up with specialised stream of products or specialised solution to a need in the economy, then that can be a reason why the bank should exist. Overall, as it stands now, we don’t need any more banks.

Do you think present lending rate is too high for growth of industrialisation? How can we reduce it?

I don’t think the rate is too high. If you look at the inflation rate you’ll see that the real interest rate is quite low. The interest rate is a function of lot of things such as monetary policy. When an economy is under inflationary pressure if you continue to keep the interest rates low the only thing that can happen is inflationary growth. When you set a price for lending to a customer you look at the availability of funds, the risks being taken and the cost of running an operation. If you take these things in consideration I won’t say banks are charging high interest rates. The central bank’s monetary policy in face of the inflationary pressure on the economy has been ‘not to move away from the accommodative policy.’ So, there will be pressure on the interest rates and that is true for any economy, and Bangladesh is not an exception.

What are qualities required to be a successful banker?

You should understand the economy, the dynamics of the banking system and most importantly remember that you are serving people and working with them — that is what successful banks and bankers do. Another thing is that, one should read about latest developments in the world of business, banking, management and leadership. This knowledge helps you to evolve yourself into a better banker. Many young bankers don’t care to do that.

What are the measures you are taking to reduce non-performing loans in your bank?

First of all prevention is better than cure. We have to prevent bad loans from happening. So you must have a very robust process of credit approval so that you know that you are doing the right thing. Internally, it can be bad management or bad financial management, and there are also technical reasons  behind bad loans. In terms of the external problem when the economy is in downturn you should help the customer to tide over that period. Dialogue with a customer and understanding the situation is very important. It is the question of due diligence before you give a loan. You must understand that the person has the knowledge and capacity to run business, he must understand some particular technical side of the business and finally the product right for the consumer that he is trying to sell. As far as recovery is concerned once a bad loan is done it is important to keep the dialogue going with the customer. You can be helpful or be unhelpful. I don’t think being unhelpful helps you to collect the loan. Particularly those customers who don’t want to default but they failed due to external reasons. When a bank gives loan it starts a partnership with the customer and the approach from that point of view.

What kind of policy support is needed for the improvement of banking sector?

Bangladesh Bank has been extremely proactive, particularly in the area of inclusivity and in supporting small and medium enterprises. The monetary policy also has to be right so that the banks do not get caught in a wrong situation. Supervision of banks is also very important. Sometimes when a bank is in bad shape, it affects other banks too because it erodes the confidence of industry insiders. These are the areas we hope there will be continuous policy support from the central bank and the government.

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