City Bank: a phoenix in Bangladesh’s banking sector

Many banks in Bangladesh struggled to ensure expected profit in the last couple of years owing to the business slowdown, but The City Bank Ltd managed remarkable returns on the back of corporate governance and diversified products. 

The first-generation lender now plans to become a full-fledged people's bank with the help of multiple digital platforms, which will consequently help the country's financial inclusion drive, said its Managing Director Mashrur Arefin during an interview with The Daily Star yesterday as it celebrates its 40th anniversary.

But the situation was not favourable to doing banking business in Bangladesh when he was appointed as the chief executive of the private commercial bank in January 2019.

The first blow came from the coronavirus pandemic, which forced the country to enforce lockdowns, a move that hit businesses hard. 

The 9-per cent interest rate cap on loans followed suit. The fee income, commission income, and exchange income were slashed, and fixed-deposit rates were pegged to the inflation rate.

The biggest blow to the business community came in February last year after the outbreak of the Russia-Ukraine war.

Despite all odds in the last four years, City Bank's gross income reached Tk 2,525 crore in 2022, up 55.4 per cent from four years earlier. Operating profit stood at Tk 1,183 crore, an increase of 77 per cent.

The net profit increased to Tk 474 crore in 2021 in contrast to Tk 202 crore in 2018. The net profit for 2022 has not been finalised yet.

"We have been able to achieve this feat as all other business units alongside the corporate bank and treasury have become the key contributors to profits for us," Arefin said.

Of the Tk 2,525-crore gross earnings, 41 per cent came from retail banking, credit card and small segment lending.

Arefin terms City Bank's management team as the best in the country's banking sector and says the board is respectful of corporate governance codes as well.

"These two are the main reasons behind the profit story of the bank and the rest are secondary," said Arefin, who joined the bank in 2007 after working for a number of local and foreign banks.

He says the bank now needs to horizontally spread its wings across the whole length and breadth of the country.

"You will see us doing more with bKash with whom we are now doing digital nano loans and Islamic DPS. You will see us focusing more on green banking and sustainable finance."

Other areas that would receive priority from the bank are lending to women, the agriculture sector, Islamic banking, and digital banking.

"If we observe the journey of City Bank, we saw that it faced several types of experiences, some of which were not comfortable at all. But we have finally managed success in our banking operation," Arefin said.

He thinks that the lender's journey can be considered an important case study for others, including academia.

"Ours is the first major bank transformation case, which hasn't gone wrong. Rather, it resulted in making it a solid bank."

The bank was established in 1983 by 12 courageous entrepreneurs. On March 27 of the year, the Bangabandhu Avenue branch of the bank was opened. Then the story of City Bank lost its desired plot.

In the new century, the bank turned into a problem bank, infested with bad debts and malpractices.

In 2007, then chairman Aziz Al Kaiser Tito, also the current chairman, envisioned a full-scale 'transformation' of the bank. The new vision was to create a proper 'financial supermarket', not just a bank. A few young bankers with a foreign banking background were brought in.

It stopped branch-based lending and opening of letters of credit, and commenced retail banking, credit cards, and SME business.

"The story that ensued thereafter is known to all. A problem bank completed the first full centralisation of any older bank," Arefin said.

A new logo, Citygem Priority Banking, City Alo Women banking, small and micro-lending, supply chain finance, and the country's most popular digital banking app Citytouch were launched.

Two landmark events have happened in the bank since 2007.

City Bank acquired the full territorial licence of American Express cards business, which now enjoys the largest market share in both credit card issuing and acquiring business.

The bank brought in the International Finance Corporation (IFC), a wing of the World Bank Group, to its board as the single largest shareholder.

The IFC nominated a woman American banker, who held a senior position in Merrill Lynch in the past, to the board of City Bank. She sits in the bank's risk management committee too.

"The IFC reshaped the governance culture in the bank and also how we view women at the workplace and their careers," Arefin said.

Another big achievement for the bank has been to maintain supremacy in corporate banking: it handles 7 per cent of the country's export and import finance.

It has financed 22 per cent of new power generation during the tenure of the current government, which came to power in 2009.

According to Arefin, ensuring good governance has been the key to the success.

"As a result, City Bank has become a brand in the banking sector."

"People trust us. In the last two and a half months when deposits were withdrawn from a few banks, our core deposit grew by Tk 2,500 crore."

The bank is continuously working to strengthen its brand image focused on corporate governance. That doesn't mean only better credit norms.

"The board stays away from the loan sanctioning process. None of the board members has so far requested the management team for one single loan to be approved."

Default loans in the bank stand at 3.85 per cent and Arefin says there is not a single bad loan at City Bank in disguise of a good loan.

"Rather, we have kept additional provision of Tk 308 crore as of today in view of the ongoing economic uncertainty at home and abroad."

He also touched upon the country's ongoing macroeconomic situation.

He said the good thing is that Bangladesh's current account balance was a surplus of $220 million in January 2023.

"This gives me hope that the dollar issue will get resolved by June."

The local currency has depreciated by 25 per cent against the American greenback in the past one year.

"To make our expert competitive and bring more remittance that will allow us to do sufficient import, I think a depreciation of the taka by another 15 per cent or so should be on the card in the coming days."

"The Bangladesh Bank governor is actively working on arriving at a uniform exchange rate determined by the market. So, we are hopeful to resolve the ongoing stress in the foreign exchange market soon," said Arefin.