UCB to widen retail, SME lending

On June 29, United Commercial Bank PLC completed 40 years of its operation. Marking the anniversary, Arif Qaudri, managing director and chief executive officer of UCB, talked about the bank's achievements and future plans as well as the challenges confronting the banking sector, among other issues, during an interview with The Daily Star recently.

DS: It was heartening to see UCB celebrate its 40th anniversary recently. How was the journey?

Quadri: UCB is one of the largest banks in Bangladesh and has a presence across the country. We have a strong network. This presence has allowed us to serve a diverse range of customers and contribute to the growth and development of the communities we operate in.

We have consistently focused on adopting advanced technologies and modern banking practices to make our services more convenient and accessible to our customers.

UCB has not been affected much by the dollar crisis, which started last year. And we have not failed to keep our word when it comes to settling letters of credit (LCs). It was possible as we started rationing LC opening in line with the projected inflows of foreign currencies. We reached a comfortable position in March.

Arif Qaudri

At this point, we are not opening the LCs as much as we did earlier. But we are trying to keep our all clients satisfied.

Going forward, we will increase focus on our retail and SMEs segment. At present, corporate clients account for 70 per cent of our exposure, while it is 25 per cent for SMEs and 5 per cent for retail and Shariah-based finance.

We will increase the pie of retail and SME financing to 40 per cent and keep corporate financing at 60 per cent.

We are educating SMEs and trying to reduce documentation procedures for them without compromising compliance requirements. We are providing a portion of loans to SMEs without collateral.

DS: UCB showed a good performance in 2022 in terms of profit. What were the reasons and which sectors drove the earnings?

Quadri: UCB demonstrated impressive resilience and growth potential in terms of revenue and profitability in both 2021 and 2022. The implementation of a 6 per cent and a 9 per cent interest cap on borrowing and lending presented a significant challenge to the industry's profitability.

However, we managed to achieve positive growth, building on the previous year's success. In 2022, UCB experienced an 18 per cent revenue growth and a 27 per cent increase in net profit-after-tax to Tk 402 crore.

Loans and advances witnessed a 16 per cent growth to Tk 46,860 crore.

As was the case for most banks, UCB's major source of income comes from interest earned on loans and advances. In 2022, our income from loans and advances grew 15 per cent, accompanied by satisfactory growth in interest income on government securities and commissions or fees.

Over the years, we have established a strong customer base in the garment sector and the service industry, which contribute a significant portion to our portfolio. Additionally, we have a large customer base in the SME sector, which also contributes to our profitability.

However, the current year has been tough because of the impact of the war in Ukraine and the drastic fall in imports. Besides, the tendency of some borrowers to repay loans has reduced this year. I think the overall situation in the banking sector was not good in the first six months of 2023.

DS: We see that the NPL ratio of UCB rose in 2021 and 2022 after a massive fall in the previous two years. What were the reasons?

Quadri: In 2020, Bangladesh Bank advised scheduled banks to suspend adverse classification of loans and advances till December 31 of the same year in order to facilitate business activities following the coronavirus outbreak.

Complying the same, UCB did not make any new classification in 2020. This temporary relief negatively impacted the NPL position in the later part of the following year as non-performing loans were not accurately classified during that period.

When businesses started to recover from Covid-19 shocks helped by low-cost stimulus loans and favourable rescheduling schemes, the start of conflict between Russia and Ukraine disrupted global supply chains, leading to an increase in the cost of imported raw materials. In addition, the shortage of foreign currencies and the problem in opening new LCs resulted in decreased export earnings of many large corporate companies in Bangladesh.

Furthermore, the power shortage cut production levels and the fuel price hike impacted transportation costs, thereby affecting the overall cost of businesses. This eventually affected manufacturers and exporters, resulting in decreased production and slowing export earnings.

The rise in production costs made it extremely challenging for corporates and SMEs to operate profitably, subsequently hampering their ability to repay loans and causing a surge in NPLs in recent years.

UCB is an old bank and has got a lot of legacy. Sometimes in the past, rules were not properly followed to provide loans and there had not been proper monitoring.

We are forming a task force to monitor loans that are turning bad. We are assigning an individual and talking directly to borrowers to ensure repayments are in line with Bangladesh Bank rules. This is giving good returns.

We are focusing on small loans where the turnover is high and the recovery is good. We are opening LCs for small clients who can't do the same in other banks.

DS: As the number of banks in Bangladesh is high, why do customers keep money at your bank? What are your key strengths?

Quadri: UCB has several key strengths that set it apart from others. It is an old bank and its reputation has widened in the last few years, locally and internationally.

We have lending arrangements with the International Finance Corporation and the Asian Development Bank. They don't give anything to us at our face value but rather on the basis of the strength of the balance sheet.

Our management is very strong and honest and has integrity. The interference of the board in our day-to-day work is minimal. Management can work freely. Our board is also considerate to improve the health of the bank. This is the strength. We have come to a position in 40 years where people say UCB is a good bank.

We place a strong emphasis on customer satisfaction. We have also one of the largest ATM networks, a lot of sub-branches and agent banking outlets. We have a lot of points of sale at stores and these are very efficient.

We are advanced technologically and we have one of the highest investments in technology among banks. We are focusing on digitalisation to improve efficiency and provide better services.

DS: What are the strategies the bank has taken to attract deposits and borrowers?

Quadri: UCB offers competitive interest rates on various deposit products to attract savings. By providing attractive returns and flexible deposit options, we aim to incentivise customers to choose their bank for depositing their funds.

We have diversified deposit products, including recurring deposits, and specialised deposit schemes. By offering deposit options, we cater to the preferences and financial goals of different customer segments.

We emphasise building strong relationships with customers. We engage with clients, understand their financial requirements, and offer personalised solutions to foster long-term relationships and enhance customer loyalty.

UCB has streamlined loan approval processes by minimising paperwork and ensuring quick turnaround times so that borrowers get hassle-free and timely financing solutions. We also offer a range of loan products tailored to the specific needs of different customer segments.

We also focus on responsible lending through credit risk assessment. Based on the thorough analysis of borrowers' creditworthiness, income, collateral, and repayment capacity, UCB aims to maintain a healthy loan portfolio while minimising credit risks.

These strategies collectively contribute to UCB's efforts in attracting deposits and acquiring clients for lending, which ultimately support growth and profitability.