Foreign banks' lively role

Mamun Rashid
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The history of foreign commercial banks (FCBs) in Bangladesh trails before independence. After liberation the new government nationalised the “East Pakistan” banks, however the foreign banks continued their operation in Bangladesh as branches of their parent groups without being incorporated locally. Today, in Bangladesh, there are nine FCBs, of which most are regional players. Only two foreign banks out of nine are truly global in terms of their size, scale and breadth of operation across the globe, though one of the regional banks has established itself strong as an emerging market bank.

The question that I repeatedly hear from various groups is “Why foreign banks should be encouraged while our banking sector already has thirty private sector banks and four nationalised banks along with few development financial institutions?” or “Why foreign banks should be engaged while we have such vibrant local banks in the market?”

In response, I would humbly like to highlight the “value addition” role of foreign banks. Our government should encourage foreign banks not because they are one of the top contributors to the national exchequer in the form of taxes, nor for the huge amount of foreign capital inflow that comes along with the foreign banks, they should be valued because they transfer success.

Foreign banks' role in this country has not remained limited only into employment generation; rather foreign banks play a proactive role in terms of transferring the best practices, developing human resources and providing financial solutions. Foreign banks have introduced new financial products like syndication, securitisation, bonds, hedging, and derivatives the financial instruments which were unheard of in the local markets even a few years back. Foreign banks still are ahead in the local market in terms of structuring financial products keeping customer benefits as `centre of the plate'. Foreign banks retained their pioneering role in the local market over the decades. The very first syndication facility in the market was done by a foreign bank, same is the first merger and acquisition deal in the country, first agricultural loan syndication. The securitisation in micro-credit receivables was done by a foreign bank. The largest IPO in the history of Bangladesh capital market was launched by a foreign bank. Even the foreign banks are now partnering with the Central Bank for determining the sovereign rating of Bangladesh. The regulators always found foreign banks beside them in shaping policies. Foreign banks have significant contribution in terms of developing risk management guidelines and promoting risk management culture in the banking sector.

Other than product and market developments, the augmentation of technology and innovation were done by foreign banks. Today online banking, ATM machines etc are not buzz words anymore. The technological wisdom that foreign banks brought in has now become embedded in the local market. Foreign banks also taught the market how to value “banker customer” relationships and how to win customer loyalty and retain customer by providing superior services. “Client First”, “Priority Banking”, “Personalised Services” were advocated by the foreign banks. Today a customer knows what services he or she can expect from a bank and within what time frame. The awareness of “customer rights” was also promoted by the foreign banks, which encouraged differentiation in services and promoted healthy competition in the market.

Even if we look from the macro perspectives, the role of foreign banks as a facilitator of the country's external trade cannot be ignored. The world looks at "Bangladesh" through the eyes of the foreign banks. Given the weak technological infrastructure, lack of branding of Bangladesh, today a foreign investor gets to know Bangladesh through the research reports of JP Morgan, Goldman Sachs or Citi. These banks send investors the message on our economic prospects like “Bangladesh has been identified as the Next Frontier” or “Bangladesh fights back fallout good”. Hence foreign banks are playing a crucial role to highlight the positive aspects of our economy and its future to the world.

To add further, foreign banks are the pioneers in establishing the concept of “Corporate Citizenship” in the local market. The world of business is not only limited to “Profit” anymore. Now there is increasing focus on 3Ps, which are “Profit, People and Planet”. The whole concept of CSR or Corporate Social Responsibilities is going through a paradigm shift from charity to social responsibility. Foreign banks in Bangladesh are doing this very same thing for last ten years or more. Foreign banks tried to get embedded into the very culture of Bangladesh. Foreign banks have endeavored to rediscover the Bangladeshi arts, local traditions and our very own heritage. That is why we get to see that the foreign banks are promoting language competitions, 100 years' songs of Bangladesh or respecting the talents through “Gunijon Shambardhona”. The foreign banks are also developing the youth by challenging them intellectually, through holding financial quiz competitions, IT quiz competition, and mathematics competition and business case presentations. They are also seen partnering with respected newspapers, World Literature centre or Liberation War Museum to promote the age-old legacy, history of a resilient Bangladesh and its' people.

Last but not the least, we are all in agreement that there is severe dearth of leadership skills prevailing in our country. Foreign banks since their inception have been creating leaders in the financial sectors and transferred this success also to the private sectors. Foreign banks provide their employees with global knowledge and outlook and prepare them to compete in the global markets. Today many local banks are catching up with the foreign banks fast in terms of services and solutions, this has been only possible for their visionary leaders and most of them started their careers in foreign banks. Even as per WTO charter, if a licensed foreign branch of a company contributes to the society in terms of business generation, corporate and social responsibility and employee creation, it should by all means be given a national identity and be a part of the national sector.

The share of the FCBs in the banking industry in terms of deposits and lending is still low. On the Deposits side, the FCBs has around 8 percent of market share of the total banking sector deposit base of USD 39 billion and about 6 percent market share of total advances of USD 34 billion as of October 2009. Compared to regional benchmarks, foreign banks' market share can be increased to plus minus 10% in both the segments.

Distribution of advances and deposits (source Bangladesh Bank)
In the global economy, truly speaking there are no 'foreign' banks rather global banks who ensure that Bangladesh is connected to the global economy. It's a two way road, while the country benefits from inflow of best management practices, technology, operating systems, products and solutions; we also have the opportunity to export our talents to the global markets. No one can afford to remain isolated in this day and age, we do not want to become another Myanmar, we are a country of immense potential and foreign banks with their local management concentration and global outlook can be of immense benefit to the country. They deserve an equal seat in the table just like any other local players and a partnership approach will lead to a win-win proposition for all.

The author is a banker and economic analyst. Views expressed are his own.

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