BRAC Bank aspires to double SME portfolio in 3yrs, says SME chief

BRAC Bank PLC plans to double its SME portfolio within the next three years by transforming the commercial lender into a complete financial partner for small and medium ventures.
For the transformation, the country's most SME-focused commercial bank set the target, recognising that small and medium enterprises (SMEs) face challenges beyond access to formal credit, such as formalisation procedures, market access and financial literacy.

"We want to educate them properly alongside providing funds, empowering them to overcome such hurdles. So we are continually transforming ourselves into a complete financial partner for entrepreneurs, not just a lender," said Syed Abdul Momen, head of SME at BRAC Bank PLC, in an exclusive interview with The Financial Express on the bank's 23rd founding anniversary to be celebrated today (Thursday).
The bank aspires to achieve the target despite SMEs struggling to access finance at a reasonable rate. Many commercial banks are hesitant to invest in the sector due to fears of potential NPL (non-performing loan) buildup.
But, BRAC Bank, which began operations in 2001 to bring grassroots entrepreneurs into formal banking, continues to invest in empowering them. This includes providing access to financial literacy and markets for their products, alongside implementing changes to their operating model to ensure accountability at all levels.
In fact, the burden of NPLs has remarkably decreased -- falling from 18 per cent in 2012 to 2.50 per cent now, said Mr Momen, who is also the bank's deputy managing director.
He described dealing with cottage, micro, and small entrepreneurs who lack basic requirements like trade licences, tax identification numbers (TINs), proof of submitting returns and maintaining financial records as "very challenging".
To better manage these challenges, the bank's SME head said the lender is constantly innovating by using appropriate digital tools and reducing operational costs.
BRAC Bank also educates entrepreneurs financially as part of its goal to become a complete financial partner.
"If they are financially literate, they will be able to make profits, ultimately improving their repayment capacity. This will, in turn, help control NPLs," said the senior executive of the bank.
To explain their success in controlling NPLs, he elaborated on a model that ensures accountability at all levels.
Under the system, loan officers are responsible for cash recovery, making them cautious before starting loan processes. Loan approvals require thorough visits to each proposal by officials in designated departments.
The bank's loan portfolio grew by 26 per cent YoY, exceeding the industry average growth of 10.6 per cent. Deposit growth was also impressive, reaching 34 per cent YoY compared to the industry average of 11.1 per cent.
The bank's consolidated Return on Equity (RoE) and Return on Assets (RoA) stood at 11.92 per cent and 1.02 per cent, respectively. Total consolidated revenue increased by 23 per cent YoY in 2023, driven by higher net interest income due to loan growth, efficient fund management and increased non-funded income.
The bank's non-performing loans ratio improved to 3.38 per cent in 2023, down from 3.72 per cent in 2022 -- a result of the bank's prudent underwriting practices, strong monitoring and effective recovery initiatives.
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