Padma Bank: Doomed from Day One

Course Information

Course Code: MKT621.2

Submitted By
Group 3:
Nushrat Jahan ID No: 2035381660
Sifat E Arman ID No: 2025239660
Aymaan Hossain ID No: 2025161660
Nishat Anika ID No: 2025343660
Irfan Qadir ID No: 2035029660

Submitted To
Instructor Name: Dr Sheikh Mohammed Rafiul Huque
Instructor Initials: Srf

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Table of Contents:
Serial No. Title Page No.

1 Background of the Company 2

2 Competitive Analysis 2
3 Causes for the Decline of Farmers Bank 4
4 Resurgence Strategy of Padma Bank 5
5 Conclusion 6
6 References 7

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Background of the Company:
Padma Bank Limited (previously known as Farmers Bank), a private commercial bank of
Bangladesh which was established in 2013. The company’s head office is located in Gulshan.
Padma Bank started their operation back in 2013, as Farmers Bank Limited. Later in 2019,
Farmers Bank was renamed to Padma Bank Limited by Bangladesh Bank. Padma Bank is a
fourth-generation bank of Bangladesh, their objective is to nurture relationships with customers
and with partners. They are operating 57 different branches in locations across the country with
1,200 promising employees. (Padma Bank Limited, n.d.) This bank has the support of four state-
owned commercial banks: Sonali, Janata, Agrani and Rupali, as well as a state-run non-banking
financial institution, Investment Corporation of Bangladesh (ICB) as 68% stake holders. (Alo, 2020)
Bangladesh Bank renamed The Farmers Bank Limited as Padma Bank Limited in response to an
appeal from the previously fraudulent private bank. The fourth-generation bank had to change its
name in order to restore public interest and prosper after loan scandals and changes in its top
management. During the former administration, the bank was unable recoup its deferred loan
payments. As a result, the new management needed BDT 715 crore from the government's five
institutions — four commercial banks and one investment bank — to help the bank boost its
liquidity. (Farmers Bank renamed as Padma Bank, 2019)
A serious cash crisis was triggered by aggressive banking, debt defaults, severe
mismanagement, and undue interference by the former board of directors. To address all of these
issues, the new management is focusing on four main objectives: reconstruction, deposit
mobilization, aggressive loan recovery, and infrastructure blanketing - all with the ultimate goal of
being the safest private bank.

Competitive Analysis:
Banking industry in Bangladesh is one of the most promising industries in the country. Since, the
independence of Bangladesh, the banking sector has rapidly grown and became more
competitive. Financial repression during 1980s and 1990s is one of the reasons of financial
deregulation which resulted in a very tough competition in banking industries around the world.
(Dutta and Saha, 2021). The Farmer’s Bank or now called the “Padma” Bank is one of the 33 of
today’s conventional private commercial banks (PCBs). (Bangladesh Bank, 2021)
To understand the competition faced by Padma Bank, we will investigate some of its competitors
and their targeted consumers and benefits given.

Padma Bank Limited: Initially known as the Farmer Bank had a hard time surviving in the
Bangladeshi market after their quick failure within the first three years of operations. Their targeted
a market of the Director’s hometown, which is a small consumer segment and later rapidly
expanded despite having massive loans and deferred payments. Despite their first impressions,
they are currently offering wide range of banking services to their clients and trying to retain their
old depositors. They are also giving higher deposit interest to its clients as a pricing incentive.

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Dutch Bangla Bank Limited: Since its inception in 1996, DBBL was growing rapidly and now
they are having more than 420 e-commerce merchants in Bangladesh. Also, DBBL is donating to
medical awareness programs and educational sections and is targeting both the tech-savvy
generation, by launching smart mobile banking services in also the underdeveloped area.
Currently, they are serving over 19 million customers nationwide and targeting market of
demographics including all classes of people and students and consumers prefer selective
attention.

Sonali Bank Limited: Sonali is a public bank in Bangladesh and is also providing other services
like exchange companies in USA, Dubai, Sonali Bank (UK) and facilitating foreign remittance in
Singapore, UK, and Hong Kong. They are also targeting a big consumer segment to provide
business facilities like financing and insurance and other banking services like corporate banking,
investment banking and investment management. Other than all these corporate facilities, anyone
can open Sonali Bank DPS.

Islami Bank Limited: This is one of the largest and oldest private banks in Bangladesh and is
providing banking services based on Shariah. They are targeting all customers including students
and focusing building Islamic banking in Bangladesh.

BRAC Bank: BRAC is one of the best private banks in Bangladesh and used to focus on the
development of small and medium enterprises. Later it turned into a prominent bank in the
competitive banking industry in Bangladesh. It is still conducting 450 SME workplaces and is also
working for people’s health and poverty. They are also targeting the usual banking clients of all
demographics, retail banking, Credit and Debit Card services, foreign exchange, wholesale
banking and custodial services and resulting in perceptual selection by the consumers.

Standard Chartered Bank Limited: SCB one of the oldest international banks in the Bangladeshi
market. It is targeting higher income groups; hence they have positioned themselves as the
business class bank in Bangladesh. Their services are unique for their customers, which made
them one of the top banks in Bangladesh and sits in the high price, high quality in the perceptual
mapping of banks.

To get a better understanding of their targeted market segment we have collected their deposit
interest rates as a reflection of the benefits they are providing from the Bangladesh Bank official
website.

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 Banks Deposit Interest rate Fixed Deposit rate

Padma 4.50% 7.50%

DBBL 2.50% 4%
Sonali 3.50% 6.00%
Islami 2.50% 5.50%

BRAC 1.50% 3.00%

Stanadard
Chartered 1.00% 2.00%

Causes for the Decline of Farmers Bank:

Nepotism and Preferential Hiring: There were traces of shady operations in Farmers Bank from
day one. The bank had started operations before even receiving proper approval from the
government. After an investigation by Bangladesh Bank, it was made public that within the first
year, the Farmers Bank had BDT 500 crore in defaulted loans. Dr. Athar Uddin, the Director of
the bank had a penchant for preferential hiring. He hired relatives and natives from his hometown
of Patuakhali as employees. (Farmers Bank Irregularity Part 02, 2017) While practices of nepotism
in hiring is commonplace in Bangladesh, this greatly affected the bank’s business performance in
the days to ahead.

Failure in conducting Due Diligence: In the case of sanctioning loans, Farmers Bank did not
conduct proper risk analysis of the borrower. They failed to assess the repaying capability of the
borrower. The bank did not follow the rules and regulations of the Bangladesh Bank while
sanctioning loans. There also seemed to be a practice of preferential lending by the bank. (Hasan,
2021) However, while relatives of the board of directors and natives from their respective
hometowns benefitted greatly from these loans, they also deferred payments. As a result, there
was an ever increasing number of no-performing loans.

Rapid Expansion: Within the first three years of operation the bank had opened 57 branches
across the country. ON the surface this was an attempt at market coverage. This level of
expansion is uncanny for any industry, particularly a bank that was still recovering from massive
debts and deferred payments from its borrowers. Synergy between the different branches of the
company became difficult with so many branches opening up in such a short time. The placement
or distribution strategies across branches were not in line with one another. The bank had branch
offices in prominent and affluent areas of the city, including Gulshan-1, Banani and Uttara. The
buildings these offices were hosted in were all discovered to be owned by the former Director of
the bank, Dr. Atahar Uddin. Dr, Uddin had rented out multiple floors of his buildings to the bank
for its offices and charged up to 33% extra for rent than the usual price. (Farmers Bank Irregularities
Part 01, 2017) Another weakness in their placement strategy was demonstrated by the fact that

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most people did not know the locations of their offices. There were no signs or boards with the
company name outside their offices in Uttara and Banani.

Loss of Brand Equity: The bank never recovered from its first year of deferred payments. The
number of defaulters and the amount of deferred payments only continued to grow. In its first four
years of operation, the bank had never turned a profit. While suffering from massive loan defaults
that made operations difficult, the bank’s internal problems came into public view in 2017. (Rahman
& Uddin, 2017) This came with massive corruption accusations against Chairman and the board
of directors. The bank would never recover from this negative press. It lost any brand equity it
had. Several members of the board of directors and audit committee resigned following the
alleged corruption scandal.

Loss of Depositors: While the lack of any profit and the growing loan defaults were already
concerns, the liquidity crisis hit the company hard when depositors began to withdraw money. An
estimated BDT 1,200 crore was withdrawn by depositors from the bank in 2017, following the
company’s negative publicity in the press. (Farmers Bank Irregularities Part 01, 2017) The company
lost most of its customers and most of its liquid assets at the same time.

Resurgence Strategy for Padma Bank:

Rescue by the Government: By the end of 2017, Farmers Bank was on the verge of bankruptcy.
The new board asked for a loan of BDT 500 crore in bonds from Bangladesh Bank to keep their
business alive. In 2018, the government injected BDT 715 crore into the bank. This was done so
with the help of four government-owned commercial banks – Sonali, Rupali, Janata and Agrani.
The Investment Corporation of Bangladesh (ICB) also joined in to help save the bank. The five
institutions became the de facto major stakeholders of Farmers Bank. (State banks, ICB to buy 60%
shares of Farmers Bank: Muhith, 2018) The managing directors of these five government institutions
became members of the new board of directors.

Rebranding: Farmers Bank had been rescued by the government in 2018. However, its
corruption scandal had received attention from the media nationwide. The entire country of
Bangladesh knew about Farmers Bank and its numerous faults and failures. The company could
not recover from this negative publicity without doing something drastic. The drastic measure
came in the form of extensive rebranding.
Farmers Bank needed to leave the negative publicity behind to get new business. At the end of
January, 2019 Farmers bank was relaunched as Padma Bank. (Padma Bank formally starts
operation, 2019) The relaunch came with a new logo and color scheme designed to attract the
attention of customers. This positioning strategy was essential for the company.

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Product Offerings: After their relaunch as Padma Bank, the company offered a wide array of
products and deposit schemes to the public. Padma Banks’s primary goal was to grab and retain
depositors. For this they offered a wide line deposit schemes including Triple Benefit Deposit
Scheme, Padma Supreme Account and Superfast Deposit Scheme. They offered updated
financial products and banking services like ‘Padma Click’, ‘Padma Digi’, ‘Padma i-Banking’
and ‘Padma Wallet’. (Padma Bank AV Final, 2020)

Price Incentives: Along with the newly offered plethora of products and services, in 2019 Padma
Bank also attempted to offer a highest interest rate in the market to attract customers. This 12%
deposit rate would yield a higher interest payment for customers at the end of the year. (Alo, 2020)
This was a financial incentive for customers. In the banking industry, higher deposit rates are the
closest counterparts to the price incentives offered in other industries. This high interest rate
was also a good market penetration strategy for the company.

Promotional Strategy: Most banks in Bangladesh have a lackluster social media presence.
Padma took advantage of this. Padma Bank launched a Facebook page which is kept active with
regular posts. Padma Bank also launched a YouTube channel which highlights the many
struggles and accomplishments of the company. As already mentioned, Padma Bank has
launched a variety of digital services which it promotes primarily though social media. (Padma
Bank Limited, n.d.) Padma Bank also regularly promotes its various products and services through
newspapers and magazines.

Conclusion:
The journey of Padma Bank began with several missteps that ultimately led to the demise of the
company. Its demise came in the form of a widely discussed scandal that crippled its business
and chased away its customers. But the story of the company is one of redemption and revival.
Only a couple of years have passed since the company changed its name and started fresh. With
a new, more qualified management at the helm and with the full backing of the government, things
look bright for the company in the days to come.
Case Study Questions:
1. What were the primary causes for the decline of Farmers bank?
2. What promotional strategies should the company take post rebranding efforts?
3. What steps should the company take to ensure customer retention?
4. What possible threats could Padma Bank face in the near future? What steps should
they take to protect themselves against these potential threats?
5. Should Padma Bank focus its promotional efforts on a particular demographic or a target
market? Or should they cast a wider net with mass marketing strategies?
6. Is it possible for Padma Bank to fully recover from the negative brand image of its
previous counterpart?

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References
Alo, J. N. (2020, January 20). Padma still bobs in choppy water, but finds some winds. Retrieved from
Business Standard: https://www.tbsnews.net/economy/banking/padma-still-bobs-choppy-
water-finds-some-winds-39879

Farmers Bank Irregularities Part 01. (2017, December 26). Retrieved from YouTube:
https://www.youtube.com/watch?v=Vu0W0xzdHOY

Farmers Bank Irregularity Part 02. (2017, December 27). Retrieved from YouTube:
https://www.youtube.com/watch?v=vgulE6LnL_Y

Farmers Bank renamed as Padma Bank. (2019, January 31). Retrieved from New Age Business:
https://www.newagebd.net/article/63337/farmers-bank-renamed-as-padma-bank

Financial System. (2021). Retrieved 19 May 2021, from https://www.bb.org.bd/fnansys/bankfi.php

Hasan, M. (2021, March 25). Padma Bank gets its wish. Retrieved from Dhaka Tribune:
https://www.dhakatribune.com/business/banks/2021/03/25/padma-bank-gets-its-wish

Padma Bank AV Final. (2020, September 8). Retrieved from YouTube:

https://www.youtube.com/watch?v=vCXsEqypnus&t=327s
Padma Bank formally starts operation. (2019, March 17). Retrieved from The Independent:
https://www.theindependentbd.com/post/191844
Padma Bank Limited. (n.d.). Retrieved May 20, 2021, from Facebook:
https://www.facebook.com/padmabankbd
Padma Bank Limited. (n.d.). Retrieved May 20, 2021, from Hire Bangladeshi:
https://hirebangladeshi.com/companies/b4096761-40df-4a91-b391-ea743c3bec06

Rahman, S., & Uddin, A. Z. (2017, December 14). Farmers Bank: Scam fallout getting worse. Retrieved
from The Daily Star: https://www.thedailystar.net/frontpage/farmers-bank-more-scams-
coming-out-1504675

State banks, ICB to buy 60% shares of Farmers Bank: Muhith. (2018, March 02). Retrieved from The Daily
Star: https://www.thedailystar.net/business/banking/state-banks-icb-buy-60-shares-farmers-
bank-muhith-cash-crunch-economists-1545670
Top 10 Banks in Bangladesh 2021. All Banks List in Bangladesh. (2021). Retrieved 19 May 2021, from
https://topinbangladesh.com/top-10-banks-in-bangladesh/