How to save a 'sick' bank, City shows the way

Not too long ago, City Bank found itself entangled in a web of daunting challenges — from mounting nonperforming loans and a shortfall in provisions to lacklustre return on equity and tepid deposits and loans. The gravity of these issues prompted the central bank to dispatch two officials as observers to the bank's board during the 2006-07 period.

Fast forward to the present, if you were to ask anyone to name the top three banks in Bangladesh, City Bank would undoubtedly grace every individual's list. But what exactly has worked this transformational magic, propelling City from a problematic entity to one of the country's premier banks across multiple metrics?

Back in 2007, City's provision coverage ratio languished at a meagre 60%. By the close of the previous year, it soared beyond 110%, a testament to the bank's prudent risk management practices. Likewise, the bank's nonperforming loans fell to a mere 3.6% in 2023 from a concerning 7.6% in 2015, signalling a remarkable enhancement in asset quality.

A review of its financial trajectory shows, City Bank's total deposits were at Tk4,054 crore in 2007. Fast forward 15 years, and these deposits have swelled nearly tenfold while loans have surged fifteenfold, an indication of growing customer trust in the institution.

Moreover, the bank's net interest income, representing the gap between interest income and payments, has witnessed an astronomical ascent, catapulting from a mere Tk95 crore in 2007 to a staggering Tk1,583 crore in 2023.

Across various metrics including capital adequacy ratio, liquidity ratio, efficiency ratio, return on assets and return on equity, as well as the expanding share of low-cost deposits in its overall deposit base, City Bank stands as a beacon, illuminating the path for others to emulate.

But wait, there's more. City Bank isn't just excelling in traditional banking realms; it's also dominating the credit card segment with an impressive 25% market share. Boasting a staggering 33,000 POS machines, the largest fleet in the country, and experiencing a meteoric rise in digital banking, the bank's clients conducted transactions totalling Tk65,000 crore via mobile phones in 2023 alone. 

Also, City Bank played a pivotal role in facilitating Bangladesh's export and import trade, handling a remarkable 6% share of transactions valued at over $130 billion in 2023. Moreover, City Bank provided funding for 22% of Bangladesh's private power plants. The bank has grown to such a significant extent that it disbursed over Tk800 crore in salaries and benefits for employees in 2023, nearly matching the bank's total net interest income in 2020.

"The journey towards transformation commenced with balance sheet restructuring," recounted City Bank Managing Director Mashrur Arefin, reflecting on his experiences back in 2007 when two observers from the Bangladesh Bank were seated on its board.

Good governance, no intervention from the board in lending decisions, diversification in loans and deposits and digitalisation have played the key role in the bank's transformation, Arefin said.

Balance sheets of Bangladeshi banks are heavily concentrated on corporate and commercial lending, up to 80-90% of their total portfolio. Here City stands different from others as 50% of its balance sheet is non-corporate now. And the move has paid the bank off as its 40% earnings in 2023 came from the micro, small and retail segments.

City Bank aims to expand its portfolio of personal and retail loans driven by the observation that Bangladesh, with a population exceeding 170 million, is experiencing an upward trend in disposable income, according to its managing director.

The array of person-centric loans encompasses retail, credit card, auto, and home loans. Additionally, personal loans offer versatility, serving diverse purposes like covering medical expenses, financing home improvements, or funding a wedding.

2008 and 2016 were game-changing years for City Bank

In 2008, City Bank marked its 25th anniversary with a significant overhaul of its image and services. This comprehensive transformation included the introduction of a new logo, the unveiling of the American Express credit card and the establishment of a brokerage business.

Subsequently, in 2016, the International Finance Corporation (IFC), the private sector arm of the World Bank Group, acquired a 5% stake in City Bank becoming its largest single shareholder. The inclusion of IFC on the board played a pivotal role in fostering corporate governance practices and promoting due diligence within the bank.

Who were the trailblazers behind this transformation?

Current chairman of the bank Aziz Al Kaiser, who was also the chairman back in 2008, played a key role in spearheading this transformative journey. He brought in Mahmood Sattar, renowned for his successful leadership in transforming Eastern Bank (EBL), as the managing director of City Bank in 2007. Entrusting Sattar with full authority, Kaiser empowered him to effect a profound overhaul of City Bank which was faced with significant challenges at that time.

Sattar still vividly remembers those days. "We couldn't even purchase a photocopier without the approval of the Bangladesh Bank. Extending loans were restricted," he recalled.

To salvage the bank, he devised a comprehensive 10-year strategic restructuring plan. Remarkably, within six months, City Bank transitioned from the 'problematic' bank category to 'early watch,' marking a significant improvement. 

Sattar explained that it took an additional one and a half years of concerted efforts to elevate City Bank to the status of a normal institution.

Following this, he initiated a series of reforms across various processes encompassing everything from information technology to lending practices, credit risk management, and beyond.

"Acquiring the franchise of the Amex card in 2008 provided City Bank with a significant branding boost," Sattar told The Business Standard.

He said another significant boost came with the entry of IFC onto City Bank's board. According to him, discussions with IFC commenced in 2010, and by 2013, various aspects including share pricing ideas were finalised.

"Now City Bank is reaping the rewards with a significant portion of its profits stemming from micro, small, and retail sectors," remarked Sattar.