Bankers, experts bin study findings

Senior bankers and experts have differed with the findings of a study on impact of SME financing on the banks' profitability which said greater financing of SMEs causes loss to the banks.
They also said it is the failure of the banks as they cannot organise themselves for right kind of SME lending.
Bangladesh Bank deputy governor SK Sur Chowdhury said he time and again has cautioned his colleagues about the risk of concentrating large and corporate loans and advised them to come out of those.
"There is no alternative but to gear up economic growth through financing SMEs, CSMEs and MSNEs as those are the key drivers of the country's economy," he added.
The observations came at a seminar on "Impact of SME Financing on Banks' Profitability: An Enquiry Across Banks in Bangladesh" held at Bangladesh Institute of Bank Management (BIBM).
Associate professor of BIBM Sohail Mostafa presented the study findings of SME financing impact.
Mr Mostafa said there is insignificant relation between the profits gained from SME financing and the total profit of the banks. In some years, there was negative effect of SME financing on banks' total profit.
The study was conducted on 56 banks between 2010 and 2016.
He said there has been an increase in both SME loan disbursement and total outstanding loan given to these enterprises. But the amount of classified loan has risen to an alarming level. The total SME loan disbursed from 2010 to 2016 was Tk 1361.76 billion. The total loan outstanding was estimated at Tk 1654.60 billion and classified loan at Tk 224.94 billion in 2016. The non-performing loan rate is 35 per cent for the state-owned specialised banks and 40 per cent in SoCBs in case of SME loans which is higher than industry average.
Mr Sohail said more classified loan affects the profitability of banks. Deposit from SME sector is also very poor when SME financing remains a very costly affair.
Commenting on the paper, seminar chairperson Khondkar Ibrahim Khaled said SME financing does not cause loss to the banks. "As there are few SME products, the supervision cost is high."
He suggested increasing the number of SME borrowers, volume of loan and supervision through a standardised model to reduce costs. Also the government should take initiatives to force the big companies for subcontracting.
AB Bank managing director Moshiur Rahman Chowdhury said there may be initial gains or profit in case of a big LC or large loan. But it ultimately affects the bank as the banks have to restructure and keep provisions for regularising the loan.
IDLC managing director Arif Khan said no one should impose SME banking on banks rather it is the strategic decision of the banks as to whether they would go for retail or corporate or SME banking.
Citing their success stories in SME financing, he said 46 per cent of their Tk 100 billion balance sheets go to SME sector as it was their strategic decision. There was risk but they devised risk management tools.
Their NPL rate is less than 2.0 per cent, return on asset is 2.0 per cent against the industry average 1.0 per cent and their profitability is one of the highest.
He suggested engaging knowledgeable, trained on SME risk, mid-level managers in SME lending, using modern technology, delegation, centralised operating system and quarterly monitoring for SME lending.
He also cautioned about the fashion-based SME lending and suggested changing mindset of the top executives and board.
Mr Sur Chowdhury said banks will have to be engaged more in SME, CSME and MSME as these are the key drivers of growth engine of the economy.
"There is risk but you need to work hard and reach more and more SME customers to get the ultimate benefit," he said.
But there is no scope for complacency although SME amount is increasing, he said.
Only 500 out of 9,000 bank branches deal with large enterprises. By 2021, SME has to be 20-25 per cent of the total loans and advances and women entrepreneurs have to be increased from 10 per cent to 15 per cent, he added.

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