Pubali Bank PLC has become successful in controlling the burden of non-performing loans (NPLs), thanks to its unique policy of robustly assessing the personal lives of borrowers apart from their business turnover before approving loans.
This pre-loan approval measure worked well as the conventional bank managed to keep its NPL ratio below 3 per cent, one of the lowest in the banking industry where the average ratio of classified loans is around 17 per cent.
Managing Director and Chief Executive Officer of one of the country's oldest banks Mohammad Ali shared how the commercial lender successfully controls classified loans in an exclusive interview with The Financial Express recently.
Alongside its own corporate governance, he said, the bank also pays serious attention to the borrowing entity's performance in this parameter. Simultaneously, the bank also analyses the personal lives of clients.
"This is because if a borrower's personal life is not stable, there is a risk that the loan will become non-performing. If we see the client is highly involved in politics or with the culture of clubbing and partying, we generally discourage them from taking loans," he explained.
In terms of fresh projects, the top executive said the bank is very careful about approving loans to this effect. In such cases, they assess whether the client has enough experience in the relevant area.
"We do not want to allow any fancy project under the current macroeconomic context. Our NPL ratio was 2.98 per cent until September last. Our target is to keep it below 3 per cent whatever the situation is," Ali noted.
He firmly believes a loan will not become bad if the entrepreneur is rightly managing the business along with his/her personal life.
The banker said he had been involved in the bank's credit committee for the last seven years, two years as the chairman and the remaining five as the top executive. "During this period, not a single penny has become classified," he said with satisfaction and confidence.
He also said such performance caused many people to raise questions about the bank's poor lending growth, but the scenario is completely opposite. "In terms of lending growth, the industry average is 9 per cent, while it is over 15 per cent for Pubali Bank. So, the growth is remarkable."
About the bank's portfolio business, he said they plan to narrow that down further by giving utmost priority to businesses dealing with basic needs, including food, clothing, housing, education, and health.
"Depositors keep their hard-earned money in the bank based on trust, and it is the responsibility of the latter to make the maximum use of the credit. Investing in businesses of basic needs will be the best utilisation of credit," commented Ali.
"We keep advocating this. We also maintain it in our business strategy. Now we are prioritising forward and backward industries dealing with basic needs where demand rises continuously," he also said.
Responding to a question, the banker said some banks were facing difficulties in attracting deposits even after offering high rates because of trust deficit. "But we managed to increase our deposit portfolio by Tk 116 billion so far this year to reach a total of Tk 716 billion."
The managing director described corporate governance, the segregation of duties among the executives, and transparency at all levels as the strongest parts of the commercial lender.
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