In May, FinanceAsia named the winners of its annual Country Awards for Achievement. Last month, winners were given their awards at our annual awards dinner in Hong Kong. Today, we begin presenting the rationale for our decisions, to celebrate the best in banking from across the region, starting with the fast-evolving Bangladesh market.
Best Bank: Eastern Bank
This is always a difficult award to judge as Bangladeshi banks have carved out very different niches for themselves. BRAC Bank, for example, not only leads the country but also the wider region in terms of the depth and breadth of its mobile financial services operation.
But when it comes to corporate lending, City Bank and Eastern Bank are the two to beat. This year, we decided Eastern Bank deserved the award because it was able to surpass the whole industry in keeping non-performing loans (NPLs) under control, while continuing to build assets during a period of strong growth.
Bangladesh recorded 7.1% GDP growth in 2016, thanks to the bellwether garment sector’s strength and Chinese foreign direct investment (FDI). It was the sixth year in a row in which growth topped 6% and private sector credit growth continued to steam ahead, expanding at a 15.54% clip in the second half of the year.
However, banks have not been able to keep bad loans under control. According to Moody’s, about one quarter of state-owned bank loans were non-performing during 2016. In the private sector, the ratio is at a more manageable level in the mid-single digits.
Eastern Bank, therefore, stands out with an NPL ratio of 2.69% at the end of 2016 compared with 3.26% in 2015. Its ratio is the lowest in the country and company executives have set an internal goal of bringing it down below 2%. They attribute the declining ratio to staff training and international certification.
Unlike some of its closest peers, Eastern Bank was able to improve nearly every single important financial metric in 2016, according to S&P Global Market Intelligence figures. Its cost-to-income ratio declined to 44.25% from 47.25%, while its net interest margin rose to 2.95% from 2.13% and its overall capital adequacy ratio slipped to 14.96% from 13.92%.
The bank did reduce its dividend payout ratio to 25% from 35% but it remains twice the national banking average. Net income, nevertheless, rose from $28.22 million to $33.74 million.
Credit cards are a key growth area on the retail side. Since the bank issued its first credit card six years ago, it has jumped to the No 2 spot behind Standard Chartered in terms of cards issued. It hopes to claim top spot during 2018.
On the corporate banking side, its main focus is delivering balanced growth with a high focus on asset quality and deepening existing relationships. It says public sector investments are playing a dominant role so far this year in line with the country’s sustainable development goals.
Eastern Bank also continues to expand overseas. It has applied to upgrade its license in Hong Kong so it can take deposits and is also seeking its first banking license in China, in Guangdong province.
Best Investment Bank: LankaBangla Securities
This is the first time we’ve given an award for best domestic investment bank in Bangladesh.
The country’s domestic banks and securities houses do not yet have full-service investment banking operations. Standard Chartered, for example, is the dominant force in the local bond markets.
But there are a host of players on the equity side and this award reflects Bangladesh’s efforts to develop more sustainable capital markets in line with its ambition to achieve middle-income status by 2021.
In doing so, the country faces a number of issues not least rebuilding public trust and education after a devastating stock market crash nearly seven years ago, which saw the DSE General Index fall from an all-time high of 8,918 to just 3,500 a few years later. Since then, it has climbed back to the 5,500 mark.
In 2016, there were 11 initial public offerings and LankaBangla was an underwriter on nearly all of them in line with its leading position as one of the country’s top brokers.
Most IPOs are still small, averaging about $2 million to $3 million. Typical was LankaBangla’s $2.16 million flotation of textile producer Evince Textile, which completed its public offering in June 2016.
However, in August 2016, it was also one of the two lead underwriters for Dhaka Regency Hotel & Resort Group’s $7.65 million IPO, which was listed on the Dhaka and Chittagong stock exchanges.
It was also a second tier underwriter when private equity group Abraaj spun off Apollo Hospitals Dhaka via STS Holdings. The deal raised $9.35 million.
LankaBangla was also one of two leads on one of the largest deals of the year, a $33.19 million three-for-two rights offering by construction materials company, GPH Ispat.
Best International Bank, Best International Investment Bank: Standard Chartered
Standard Chartered has a very strong lock on this award and it has continued to cement its dominance over the past year.
Assets, loans and deposits all increased during 2016, enabling the bank to extend its market share. Assets rose 13.1% over the course of the financial year, topping $3 billion for the first time.
Loans rose 14.5% to $1.57 billion and assets by 15.7% to $2.29 billion according to S&P Global Market Intelligence data. The bank says it holds 49% of all foreign banking deposits and increased its overall market share from 3.1% in 2015 to 3.3% in 2016. Where loans are concerned, it says it has a 79% market share among foreign banks and a 4.15% market share among all banks, up from 3.6% in 2015.
The bank says non-performing loans continue to buck the industry trend and have been decreasing for the past two years from 3.9% in 2014 to 3.1% in 2015 and 2.9% in 2016.
However, in line with its peers, most of its other metrics have deteriorated slightly. Revenues were down from $302 million in 2015 to $280 million in 2016 and net profit also fell from $132 million to $115 million.
This put pressure on margins with the bank’s net interest margin declining from 4.92% to 4.3% and its cost to income ratio rising from 30.47% to 31.96%.
At the end of 2016, the bank had a net income split of 60% corporate and institutional banking, 20% retail and 20% commercial bank.
On the retail side, the bank celebrated 20-years issuing credit cards in Bangladesh, although it is now facing intense competition from local banks including City Bank and Eastern Bank, which hope to supplant it.
It marked the anniversary last May with its first chip-and-pin credit card. It also estimates that it accounts for one dollar of every three spent on local debit cards. It also continues to rationalise and upgrade branches. In February, it merged three Chittagong branches into one and upgraded the overall facilities by boosting its Priority Centre offering.
On the corporate, commercial and institutional banking side, the bank estimates that it directly or indirectly supports 13% of the country’s trade flows and either routed or confirmed $9 billion in 2016. It is a very big promoter of China’s Belt and Road Initiative projects and has a dedicated China desk in Dhaka.
The government is very focused on upgrading the country’s power supply and many of the bank’s deals reflected this last year. It says it directly mobilised $850 million in financing for infrastructure spending over the course of the year, leading to an additional 640MW of capacity being added to the national grid and 2.5 million tonnes per annum of additional steel capacity.
Standout transactions included a $400 million financing for the government-owned North West Power Generation Company’s Sirajganj plant. Standard Chartered was the structuring bank and mandated lead arranger.
It also helped pioneer new advances in Islamic financing closing the country’s first diminishing Musharaka, a $32 million for Noman Group, a home textile exporter. In terms of debt capital markets, the bank continues to face little competition with a 95% market share in the domestic bond market and 75% market share in loan syndication, with a total value of $420 million in 2016. It led six out of the market’s seven bonds deals including tier 2 offerings for Trust Bank, One Bank, Dhaka Bank and Southeast Bank.
The bank is the government’s international rating advisor but has yet to persuade it to set an international benchmark. It has also been a strong advocate for developing the local bond market to bridge the infrastructure investment gap. So far issuance has almost exclusively been limited to bank capital raisings to meet Basel III requirements.
