The City Bank joins the queue to invest in a digital bank by becoming a sponsor shareholder as the country looks to accelerate financial inclusion with the help of technology.
In a stock exchange filing on Tuesday, the first generation private lender revealed its decision to invest maximum Tk 277.80 million. The amount would be equivalent to 11.12 per cent of the total paid-up capital of the proposed digital bank.
The proposed digital bank is a consortium comprising a few banks and a telecom company, where City Bank is a sponsor shareholder, said an official of the bank requesting not to be named.
City Bank has a long proven experience of working on financial inclusion through digital services, he said, adding that the consortium had already applied to the Bangladesh Bank for licence.
Despite the news, the bank's stock price remained stuck at floor at Tk 21.40 on Tuesday.
Meanwhile, five other listed companies, including two banks, --- Bank Asia, BRAC Bank, Advanced Chemical Industries (ACI), Crystal Insurance, and Pragati Life Insurance have disclosed plans to invest in digital banks in efforts to encourage cashless transactions.
Last month, Bank Asia decided to invest Tk 125 million to set up a digital bank. ACI, one of the leading conglomerates in Bangladesh, announced its plan to inject Tk 100 million in a similar initiative while Crystal Insurance and Pragati Life Insurance planned to invest Tk 125 million each.
BRAC Bank would join the bandwagon but has not yet disclosed its investment size in its proposed 'bKash digital bank'.
A digital bank, also known as Neobank or virtual bank, operates exclusively online without traditional physical networks. That is the main difference between a digital bank and a conventional bank.
It will, however, have physical registered headquarters.
The Bangladesh Bank invited applications for proposals to form digital banks on June 21. The deadline was initially set at August 1 this year.
The deadline was extended to August 17 to give entrepreneurs more time to prepare detailed applications with all the necessary documents.
As per the guidelines, a digital bank will have a minimum paid-up capital of Tk 1.25 billion. The capital will come from sponsors.
Sponsors' shares cannot be transferred within five years from the commencement of the business, without prior permission from the Bangladesh Bank.
The guidelines are aimed at inspiring fintech companies, tech firms, microfinance institutions, mobile financial service-providers, banks, and financial institutions to come up with joint ventures for setting up digital banks.
A digital bank must go for an initial public offering (IPO) within five years from the date of getting licence from the central bank, according to the guidelines.
Digital banks will not be allowed to carry out transactions in foreign currencies or engage in trade finance. It will, however, be allowed to collect wage earners' remittances.
It may issue virtual cards, QR codes, and other advanced technology-based products for facilitating transactions.
City Bank's net profit grew 9 per cent year-on-year to Tk 2.37 billion in the first half through June this year.
However, its annual profit dropped nearly 5 per cent to Tk 4.51 billion in 2022. The company disbursed 10 per cent cash and 2 per cent stock dividend for the year.
In terms of asset quality, the bank's non-performing loan (NPL) stood at 3.90 per cent in 2022, down from 4.90 per cent a year before while the sector average is 8.16 per cent.
The loan book recorded a growth of 24 per cent to reach an outstanding total of Tk 354.77 billion while deposits grew by 18 per cent to Tk 331.89 billion at the end of 2022, according to its annual report.
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