Professional Documents
Culture Documents
Rating
Rating
31 December 2003
www.fitchratings.com
Banks
PROFILE an equity stake of greater than 5% in the bank, which,
we are informed, is the reason for the twenty-
• A small but well managed private bank member board of directors. The central bank rules in
• Progressive management which has this regard have since undergone a slight change: the
deliberately kept ‘insider lending’ at the individual holding has now been enhanced to 10%
minimum, the primary cause of the poor and the size of the Board will now be restricted to 13
health of Bangladeshi private banks members, which should include at least two
Prime Bank is one of the new Bangladeshi private independent (non-promoters) directors. In light of
banks, which was established in 1995 by a group of these developments, Prime Bank’s board will likely
businessmen. Private banks as a group are small in undergo some changes in the near future.
Bangladesh; the banking system is dominated by the
state-owned banks, even as their market share (both The bank’s board has a policy of rotating the
in loans and deposits) has been declining over the Chairman’s position amongst various members;
past few years. While government banks are consequently, the bank has a new Chairman every
insolvent many times over (and survive mainly on year. The executive management also appears a bit
the strength of the implicit sovereign support), most top heavy (relative to the size of the bank) with one
private banks too are extremely weak and are beset additional managing director besides the managing
with many problems. Arguably, Bangladesh has too director, a Senior Executive Vice President, four
many financial intermediaries in relation to the size Executive Vice Presidents and many Senior Vice
of its economy (2002 GDP: USD 46b): there are 30 Presidents. Prima facie, the ‘rotating’ Chairman and
private banks besides four nationalised commercial the presence of effectively two managing directors
banks, five government-owned specialised banks, 10 could lead to some overlapping responsibilities and
foreign banks and 28 non-bank financial institutions. possible conflict; however, this does not seem to
The large number of private banks is mainly because have happened so far and the bank continues to
the central bank liberally issued licenses to perform satisfactorily.
entrepreneurs in the 1980s and 1990s (stopped since
2002) for setting up banks; even some ‘less credible’ Prime Bank mainly caters to the trade finance market.
entrepreneurs were able to obtain such licenses, and Manufacturing activity in Bangladesh is relatively
the banks promoted by them eventually got into all subdued, but there are certain industries such as
sorts of problems. Further, due to the narrow and textiles, where the country has a competitive
skewed nature of the Bangladesh economy advantage. Many textiles manufacturers export their
(development is concentrated in and around Dhaka merchandise (garment exporters for example) and it
and Chittagong – the two main cities, while a large is this customer segment that the bank mainly caters
part of the country is undeveloped), most banks to. The bank is involved at all stages of the export
compete in a limited geographical area and with a cycle: it gives pre-shipment finance for working
relatively limited set of ‘good’ borrowers. capital and also provides post-shipment facilities
such as bill discounting. In addition, the bank also
Prime Bank is listed with ‘promoter shareholders’ undertakes some amount of project financing for its
collectively holding a 46% stake in the bank. One of clients’ plant and machinery, or modernisation
the main reasons for the bank’s good financial requirements. The lending restrictions on state banks
condition is that the bank’s promoters, who have (due to their poor capital position) have helped
other business interests as well, have refrained from private banks such as Prime, which have been
‘using’ the bank for insider lending. This is a huge growing at rapid rates (30-35% per annum). While
issue for Bangladeshi private banks, and together the bank has done well so far, its relatively small size
with somewhat lax supervision, is the single biggest makes it somewhat vulnerable to unexpected loan
factor for the poor financial condition of most losses if some large accounts go bad.
private banks. While Prime Bank has so far benefited
from its promoter shareholders’ approach of Over the last three years, Prime Bank has introduced
maintaining an arms-length relationship between the credit cards in association with MasterCard. The
bank and their other businesses, whether this would credit card market in Bangladesh is still relatively
continue to be the case in future, particularly when undeveloped with only about 250,000 cards in
the second-generation promoters become directors of circulation (population of Bangladesh: 130m). The
the bank, remains to be seen. foreign banks (mainly Standard Chartered) are the
main players in this segment, although some local
The bank has a rather large board (20 members in banks such as Prime have been investing in this
all) with representatives from all the major market to position themselves for the future. While
shareholders. Until recently, central bank norms delinquency rates on credit cards are relatively high
prevented any one shareholder individually holding (Prime Bank: 10%; another local bank: 20%), the
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