'Lack of customer trust major concern for banking sector now': MTB MD Syed Mahbubur Rahman

A lack of customer trust is now the biggest concern in the banking sector. This stems from the massive corruption exposed following the change in government, leaving many banks unable to repay depositors. Even top executives of reputable banks are facing questions from customers about the safety of their money.

Another significant challenge is the rising number of default loans. If S Alam Group's loans default, it will add at least Tk1.5 lakh crore to the existing amount, pushing total default loans above Tk3.5 lakh crore.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, shared these observations during an interview with Jebun Nesa Alo and Tonmoy Modak of The Business Standard, marking MTBL's 25th anniversary.

Discussing the bank's future plans, the seasoned banker said they are developing a super app aimed at popularising QR code-based payments across the country to promote a cashless society. He also talked about how his bank remains resilient despite the industry crisis and their strategies to overcome upcoming challenges.

Infographic: TBS

TBS: The economy is facing various challenges. How has MTB shown resilience during this time, and what are the reasons behind it?

SMR: Since the establishment of the bank 25 years ago, the country has seen many significant events. Between 2000 and 2009, the banking sector experienced reasonable growth, with non-performing loans remaining relatively low. During this period, banks were thriving under an open market economy. However, after 2009, the situation began to change as bad loans increased. By 2017, we even witnessed forced takeovers of banks. 

Despite these challenges, MTB has performed well, and one of the key reasons for this success is strong governance. The board has not interfered in our day-to-day operations. Even before I joined, I never heard of any interference from the board. The board has given us a lot of flexibility, so I would blame management for any operational mistakes.

MTB is among the top 4-5 banks in the country in terms of asset size. Over the past five years, our NPL ratio has remained below 1%, which is a legacy issue. The pillars of our success have been strong governance, robust branding, and committed management.

It's also important to mention our decision-making process, particularly during periods of liquidity stress. Liquidity management was especially challenging, yet MTB was one of the few well-managed local banks when the foreign currency liquidity problem arose in 2021 and 2022. Even as other banks reduced the issuance of import letters of credit, we continued to open them. The liquidity issue across the banking sector has escalated since 2023, but we are in a strong position. Our ADR currently stands at 78-79%.

How are you in such a good position with liquidity?

One reason for our strong liquidity position is our constant focus on liquidity management. While capital strength is important, it's not the only factor. Even state-owned banks, despite weaker capital conditions, are performing well. However, strong liquidity is crucial as it reflects customer trust. When a customer wishes to withdraw their deposit, we can provide it without hesitation, which boosts their confidence. Similarly, making timely LC payments to foreign banks further strengthens that trust. 

From the moment I joined, I prioritised increasing the bank's net open position, which has helped us maintain good dollar liquidity. During the pandemic, the central bank allowed deferred LC payments, leading to payment backlogs. To address this, we arranged about $100 million in advance, ensuring we could meet future obligations smoothly. 

I've always encouraged management to focus on growing our customer base, as it directly improves liquidity. We now have around 13 lakh customers.

What are your plans for the future?

Our goal is to continually build trust among the general public. In addition, we are focused on releasing demand-driven products, always prioritising what our customers want. The performance of the MTB app has been good so far, but we are planning further enhancements. Our vision is to create a financial super app that meets all the daily financial needs of our customers. From opening DPS accounts and paying utility bills to increasing credit card limits and making various payments – everything should be possible through the app without visiting a branch. 

We aim to make the app's services even smoother than mobile financial services. Once this is achieved, customers will only need to visit branches for large transactions. The development of our app has already made significant progress, and this is a key part of our journey. We are constantly working to improve the customer experience and currently have more than 1.5 lakh active users.

Additionally, we are looking to introduce QR code-based payments, allowing even small transactions to be completed using this technology. This will be the first step toward the cashless society we envision. In India, for instance, even something as simple as buying a coconut from a street vendor can be paid for using a QR code. We aim to bring that level of convenience to our customers.

So why is this not happening in our country?

There are several challenges beyond offering merchant discounts. We need additional policy support to make QR code payments widely adopted. First, the codes are not always user-friendly, and second, many customers are unfamiliar with using them. Despite this, we have already introduced QR code payments in some shops and have over 1 lakh registered micro merchants in retail, the highest among banks in the country.

Recently, we launched a pilot project with Zaytoon Business Solutions to make Sirajdikhan Union of Munshiganj cashless and achieve 100% financial inclusion. We are promoting QR code payment habits in the union, and micro merchants are also helping customers open bank accounts. Interestingly, most of the residents use smartphones, and it is a strong remittance-based area. We have deployed many merchants there. If this project succeeds, we plan to expand it further with Zaytoon, which has a strong sales team and infrastructure. Partnering with them helps control costs, as doing it in-house would be more expensive.

How are you ensuring digital security?

We have robust 24/7 IT security in place, supported by firewall experts and ethical hackers. We continuously monitor hacking attempts to stay ahead of potential threats. As automation increases, it's natural that fraud attempts will rise as well. Although we haven't experienced any incidents so far, we remain vigilant to prevent such activities.

What kind of challenge do you see ahead in the banking sector?

There is currently a trust issue in our sector. The events we're witnessing, along with the news published in the media, have created a significant lack of confidence among the public. Many banks are unable to return depositors' money, which is affecting the entire industry. People frequently call to ask which banks are safe to deposit their money. Even the managing directors of well-performing banks are facing such questions. Regaining customer trust is now our top priority. The amount of money being held outside of banks has increased, largely due to this widening trust gap, which is a challenge for all of us.

Our sector suffers from serious governance issues, which are at the root of many other problems. I hope the new government will prioritise this, as it is critical for resolving the situation. Unfortunately, poor governance has already caused significant losses in the banking sector. Governance is also at the heart of the NPL issue we are dealing with. One contributing factor is that independent directors on bank boards often failed to fulfil their roles, and this needs to be addressed.

In our bank, the directors see themselves as custodians of depositors' money, a mindset not commonly found in the sector. Our board doesn't focus on dividend amounts; they are more concerned with strengthening the bank. How many banks operate with such a mindset? We always pay stock dividends because our focus is on capital growth.

Another pressing issue is the rising NPL, currently standing at Tk2 lakh crore, which could soon reach Tk3-3.5 lakh crore. This means 20% of total loans are already non-performing. While other countries have also faced high NPL ratios, they managed it through strong leadership and reforms. Our legal system needs to be strengthened. India implemented a master circular on wilful defaulters, which we should consider adopting. 

Additionally, a circular from the central bank allows us to lend again to defaulters. This policy needs to be revised. I also believe professionals should be appointed to bank boards. 

We are also lagging in IT investments. If we want to reach our goals, we must increase our investment in this area. 

Improving human resources is equally important, not just for the banking sector but for many major industries in the country. However, in banking, where we deal with public money, having expert professionals is crucial. We need to invest more in developing this expertise.