Digitisation is the major tool that can help banks cope with the challenging situation by improving operational efficiency and minimising expenditures, said Rahel Ahmed, managing director of Prime Bank
Some notable international accolades of Prime Bank
- Prime Bank's proactive safeguard measures have earned it a prestigious international recognition of one of the best Covid-19 responders in Asia
- Euromoney's 'Excellence in Leadership in Asia 2020 Award' is a unique feat for Prime Bank as it is the only bank from South Asia to earn this title
- Prime Bank has been awarded with the "Best Digital Bank in Bangladesh Award" by AsiaMoney initially for introducing digital savings account PrimeDiGi
Two big issues – lending rate cap and Covid-19 – have hit the business of banks hard, which has already been reflected in the half-yearly operating profits of banks this year. Most banks experienced a decline in their revenue earnings in H1 2020.
Digitisation is the major tool that can help banks cope with the challenging situation by improving operational efficiency and minimising expenditures, said Rahel Ahmed, managing director of Prime Bank.
In an interview with The Business Standard, he said Covid-19 has brought blessings for digitalisation as the pandemic has pushed banks to go for expanding their digital banking services.
Digital banking also has penetrated the customers' mind as people have become used to with online shopping and transactions during the pandemic situation.
Giving an account of how digitisation minimises cost, he said when a client comes to any branch of Prime Bank for a cash transaction, the transaction costs the bank around Tk100, calculating all charges including office rent, utility bills and salary of that teller for providing the service.
However, if the transaction is done through an ATM, the bank's expenditure comes down to roughly Tk40-50. And when this transaction is done through the mobile app, the cost comes further down to around Tk25-30, he added.
This cost calculation shows how good the digital banking solutions are for increasing cost efficiency of a bank.
Banks do not need to maintain big branches anymore. In near future, banks may not even need any branch at all. Agent banking will help banks spread their banking service across the country.
Therefore, banks do not need to maintain physical branches anymore if digital banking is expanded, the Prime Bank managing director observed.
Prime Bank has decided not to reduce salaries or cut jobs to reduce operational cost. Instead it plans on resizing office premises to this end. Work from home is the start of digital transformation, according to the bank's managing director.
"Every day we are holding meetings on Zoom one after another. Loan proposals are being processed electronically," he maintained.
The bank's proactive safeguard measures have earned the bank a prestigious international recognition of one of the best Covid-19 responders in Asia.
UK-based renowned financial publication Euromoney's 'Excellence in Leadership in Asia 2020 Award' is a unique feat for Prime Bank as it is the only bank from South Asia to earn this title.
Prime Bank started to get prepared to handle the Covid situation from February this year through raising health awareness among its employees and customers and taking safety measures.
"Digitisation is one of the major helping tools that minimise operational cost," he said adding that digital transformation in the banking sector started a decade ago and mobile financial service was a big part of the transformation.
"Before the introduction of mobile financial service, ATM, debit card, credit card, internet banking were started but they were mostly foreign bank centric. Moreover, customers were not much used to digital channels," he pointed out.
However, bKash emerged as a game-changer in the digital platform in the financial sector by introducing financial transactions through a mobile app.
Later, banks extended their internet banking activities to build an ecosystem in daily life by making all necessary banking services like balance inquiry, internal account transfer, utility payment, tuition fees easily through mobile apps.
These were a part of digital transformation in the banking sector, which gained momentum in the last five to seven years, said the top executive of Prime Bank.
However, Covid-19 has accelerated the process pushing banks to go for digital banking by digitising all alternative delivery channels, he mentioned, adding that digital banking also has penetrated the cutomers' mind as the people have become used to with online shopping and transactions during the pandemic.
Usually, customers would visit chain shops physically for purchasing daily necessaries but in the new normal situation they have been preferring shopping online, he observed.
Customers have become habituated with using digital channels for daily transaction-related activities coming out from the psychology of visiting bank branches. As a result, around 60-70% branch transactions are now being done through alternate digital channels.
In line with the digital transformation during the pandemic, Prime Bank also has put a big emphasis on digital banking activities by introducing new digital products.
According to Rahel Ahmed, Prime Bank is focusing on expanding alternative digital channels and resizing its branches to reduce operational cost.
As part of its digital expansion, Prime Bank, for the first time in the country, has introduced a digital savings account named "PrimeDiGi."
This product was launched at the beginning of the last year.
In the case of this product, clients do not require to come to a branch or come into any physical contact to open an account. Now, other banks are following Prime Bank for introducing such digital savings accounts.
"In introducing the digital savings account we had in mind the millennial generation who do not prefer coming to banks," the Prime Bank managing director said.
Prime Bank has recently achieved "Best Digital Bank in Bangladesh Award" from Hong Kong based publication AsiaMoney primarily for PrimeDiGi.
The bank has been getting a huge response from customers in using its digital products.
For instance, customer registration in internet banking service named "Altitude" has increased three to four times to over 1,500 a month in the last five months, which was around 400 per month before the coronavirus outbreak.
As customers have been preferring internet banking, Prime Bank introduced self-registration in internet banking in April to make the process easier.
As people are getting more used to internet and app based banking, footfalls in bank branches have declined significantly despite a rise in transaction volume.
As part of accelerating the digital transformation roadmap, the bank went to financing alliance with major ICT trade bodies for collateral free MSME loans. It is a part of expanding its SME (Small Medium Enterprise) portfolio coming out from the corporate banking portfolio.
The objective of alliance with ICT trade bodies is to reduce maintenance and acquisition costs of small customers to cope with the lending rate cap minimising the operational cost.
Prime Bank is working on restructuring the traditional SME banking model to minimise high operational cost.
The traditional SME banking model needs huge human resource involvement and many branch offices. This requires a high acquisition cost, pushing the lending rate up.
The cost income ratio of SME business in the banking industry is 85-90% which is very high. Banks cover this high cost by charging a high lending rate up to 20%.
This conventional model is no more fruitful for banks amid the pandemic situation and in the lending rate cap regime. In this perspective, Prime Bank went to a platform-based coalition model to bring down the cost of SME business.
The ICT sector became the first choice of the bank for coalition as it is one of the major sectors that help growth and to go forward.
Around half a million freelancers are working in the ICT sector. They do not have physical collateral. In this case, the bank has changed its credit assessment mindset by giving value on intellectual collateral and transaction history of the company.
As part of this initiative, Prime Bank has already disbursed loans of around Tk6 crore to 25 small software development companies in one and half months after joining hands with the Bangladesh Association of Software and Information Services (BASIS). E-Commerce Association of Bangladesh (e-CAB), Bangladesh Internet Service Providers Association (Ispab), Bangladesh Association of Call Center and Outsourcing (Bacco) and Bangladesh Computer Samity (BCS).
These 25 borrowers were completely fresh clients for the bank and they did not have any previous transaction history with the bank.
This is how the bank has been expanding its digital banking activities through platform-based solutions in the SME sector.
Digital banking is of great benefit to customers because banks are bringing all touchpoints of their everyday life-style into a single platform. For example, customers can make small transactions, payments of online shops and other utility bills through banking app based delivery channels.
From the banks' side, digital banking will increase their operational efficiency. Banks have to spend a huge sum of money for maintaining a branch of 3,000-5,000 square feet area, he added.
Meanwhile, banks' have witnessed their half-yearly profit in 2020 fall in the wake of the lending rate cap and the coronavirus outbreak.
All business activities had been in a standstill for over two months since March this year. Therefore, banks lost business revenue of that period.
Moreover, suspension of loan repayment during the pandemic situation stuck banks' revenue.
On top of that, banks could not do business in retail banking as many people lost their job. As a result, demand for home loans, car loans and personal loans declined from the salaried employees.
Amid this situation, banks are more cautious in retail lending.
In India and America, banks have reviewed credit card portfolios due to income erosion of customers. They are revising down the credit limit fearing job losses during this extraordinary situation.
Local private banks also are following this strategy and are reviewing credit card limits as pandemic eroded customers' debt service capacity, raising risks for banks.
Therefore, in the next six months of this year, banks have a very little chance of making business in retail banking.
SME is another segment for banks' business, which is also in a vulnerable situation as 40-45% small businesses have shut down after the virus outbreak.
Though the Bangladesh Bank has introduced a credit guarantee scheme for SMEs, it will not help banks fully as the scheme has been announced only for existing customers. New customers will not get this facility.
Thus, it will not be possible for banks to move aggressively for SME lending from the risk perspective until a turnaround of the overall economy.
The corporate segment which is the only hope for banks' business is also under default loan pressure.
Corporate clients remained unclassified by taking regulatory forbearance. Amid this situation, banks will not lend in this segment aggressively as default loan is assumed to increase soon.
There is very little chance of increasing credit growth in the next six months as all three sectors are in a vulnerable situation for lending.
"In this circumstance, where will banks recover the revenue losses from?" Rahel Ahmed questioned.
Moreover, lending cap ate up 30-35% of revenue of banks. When revenue is on a downward trend, the only way to improve profitability is to minimise operational cost.
Amid this situation, Prime Bank has put all its efforts to reducing cost from all segments except salary cost.
Prime Bank's net profit in the first six months of the current year dropped by 46.53% to Tk54 crore compared to the same period of 2019 mainly due to the impact of Covid-19 pandemic and interest rate capping.
Prime focus of Prime bank is now on digitisation, said Ahmed.
He said the bank will not go for physical infrastructure expansion this year.
The main target of the bank for the next six months is cost optimisation, maximum digitisation and creation of maximum customer convenience.