Nearly a fifth of conventional banks in Bangladesh are preparing to establish digital banks to expand their reach to every nook and cranny of the country, win and retain tech-savvy customers without physical presence.

Ten private banks have already formed a consortium to set up a digital bank -- Digi10 Bank PLC -- while Bank Asia and Brac Bank have also shared their decisions to become sponsors for separate digital banks.

Two analysts have welcomed the bid by banks to join the digital banking segment, saying this will increase competition and include unbanked people in the formal financial system, enabling the country to attain its goal of financial inclusion and become a cashless economy.

Of the 10 banks, The City Bank, Eastern Bank, Mutual Trust Bank, Mercantile Bank, National Credit and Commerce Bank, and Pubali Bank have disclosed their plans to invest in a digital bank while Dutch-Bangla Bank Ltd and Trust Bank plan to join the consortium.

"We will go for the digital bank if we get approval from our board," said Abul Kashem Md Shirin, managing director of DBBL.

He said the private bank wants to be a part of a digital bank to reach every part of Bangladesh and across the world and meet the demands of tech-savvy customers who prefer to carry out banking virtually.

"The current generation is tech-savvy, so we want to provide services to them digitally."

As per the central bank's guidelines, digital banks will not be able to set up any brick-and-mortar branch.

"Once Digi10 Bank gets approval and is established, its clients will be able to avail the services of the 10 banks. The 10 banks have huge facilities," Shirin said.

In June, the Bangladesh Bank invited applications for digital bank licences.

The BB said digital banks would not be permitted to give out loans to carry out foreign trade or term loans to medium and large industries. It, however, limits the scope for conventional banks to establish a digital bank alone.

Syed Mahbubur Rahman, managing director of MTB, said: "The consortium of banks will help in terms of inclusiveness and increasing efficiency."

"This will help make the payments system strong and pave the way for the central bank to introduce its digital currency."

Rahman says banks are not rushing to set up digital banks out of fear of losing the market owing to expected competition from virtual banks, also known as neobanks. 

"Rather, there is a lot of opportunity. We think we will be able to contribute to governance and ensure stricter compliance in the industry."

Investors willing to set up a digital bank will have to have a minimum paid-up capital of Tk 125 crore and the capital will have to come from sponsors.

The new entity must be a public limited company and the minimum stake of each sponsor will be Tk 50 lakh.

Humaira Azam, managing director of Trust Bank, said the bank plans to join the consortium as part of its motto of financial inclusion and digital transformation.

Brac Bank has decided to invest in bKash Digital Bank PLC as it is already a shareholder of the largest mobile financial service provider in the country.

bKash Digital Bank PLC will be a separate entity from mobile financial service provider bKash Limited, said Selim RF Hussain, managing director of the bank.
"And we, as a shareholder, want to be part of that."

He said digital banks have not become immensely successful in the world, so traditional lenders in Bangladesh don't feel that they would be left behind as digital banking will gain traction.

"Digital banks are unlikely to become profitable overnight. A lot of investment will be required."

Shah Md Ahsan Habib, a professor at the Bangladesh Institute of Bank Management, says there is a concern about how far a digital bank will succeed.

"It appears that banks are collectively going for digital banks to stay ahead in the competition and expand their market."

He says digital banks can do a lot in terms of raising access to funds for small and medium enterprises and providing small loans to people who are still not under the formal financial system.

"So, there is nothing wrong if those who have platforms come to offer digital banking. This will rather create a greater competitive environment and people will reap the benefit."

Md Shahidul Islam Zahid, a professor at the banking and insurance department at the University of Dhaka, said the move by banks should be welcomed as it will have a positive impact.

"Clearing and fund transfers will be faster and all will benefit. However, awareness and banking literacy is required."

He said a large portion of the population is still not accustomed to the conventional banking system. "So, it is important to see whether investment in digital banking will ensure return."