BRAC Bank PLC. (BRACBANK) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, and [Foreign Language] from Dhaka, Bangladesh. My name is Selim Hussain. I'm the Managing Director of BRAC Bank. And I am pleased to welcome you to the third quarter earnings disclosure program for BRAC Bank Limited. We have a little over 2 hours scheduled for this particular program. And let me start off by introducing some of my colleagues who are here with us. We have the 3 Deputy Managing Directors from BRAC Bank. Our Chief Financial Officer, Mr. Masud Rana, our -- who is also -- I'm sorry, Sabbir Hossain, our Chief Operating Officer; Tareq Refat Ullah Khan, our Head of the Corporate Banking division. Then we have our business heads, Syed Abdul Momen Tomal, who's Head of SME; Mr. Mahiul Islam, who is the Head of Retail Banking. We have our Head of Credit Risk Management, Mr. Ahmed Rashid Joy; we have Nazmur Rahim, who is Head of our Alternate Banking Channels; and we also have Mr. Yasir Arafin, who many of you may have interacted with or corresponded with. Yasir is Head of our Business Finance team. That essentially is the BRAC Bank team. And I'm also pleased to welcome to today's program, Mr. Kamal Quadir, the CEO of bKash; and also Mr. Moin, who is the CFO of bKash. So without further ado, let us start. Yasir? The standard opening statements and disclaimers. Let's go to the third slide. And quickly, I will take you through the agenda. Yes. So essentially we have 2 hours. But if there are questions, which we'll continue further, we're happy to continue beyond that time as well. We'll start off with a quick economic and market update. And then we get into the 3 client segments, SME, retail, corporate, talk a little bit about our balance sheet, portfolio mix, the spreads, et cetera, spend a little time talking about treasury and financial institutions. Obviously, many of you are interested in risk management. Then we dive into the alternate banking and digital channels that we have with the various initiatives. We talk about the actual financial performance. And of course, in between, we will also give an opportunity for you to listen to Kamal Quadir, the CEO of bKash, and I'm sure all of you are very interested to listen to Kamal. Shall we move into the next slide, please. We start off by giving you a sense of where Bangladesh is in terms of the pandemic itself. And that bottom line really says at all. Infection rates are pretty much done, as you can see from the left-hand side graph. Medical treatment has improved dramatically as a result of which fatalities are now relatively quite low. And basically, overall psychology, the fear factor itself has sort of evaporated, and activities have normalized across society, across the economy. There are very few sectors that have not now returned to normalcy. Perhaps, to an extent, retail outlets, but everything else restaurants, hotels, resorts, even flights within the country, transport, everything has normalized pretty quickly. Next slide. We'll ask Shaheen, our Treasury Head to take us through some of these economic metrics.

Okay. Thank you, Selim bhai. I think the country has really done fantastically well in terms of recovery from the pandemic. Like in the early part of the pandemic, like March, mostly April, May and June, there was a dip in terms of export, remittance and all the segment. And from June onward, we have seen significant improvement. Like on the export side, we have surpassed in first quarter of this financial year like in July, August, September by 2.58%, considering last year's number was really challenging. So I think it was a success. And on the remittance side, this is the biggest success, if I can say. Like we grew our remittance by 43% for the first 4 months of this financial year, July to October. So this has really built up a well cushion in terms of FX reserve. Reserve has now crossed $40 billion. In fact, it is now $41 billion. So this reserve accumulation has really created a good cushion for us. At the same time, it has injected lot of liquidity in the system as well. We'll discuss it later. Let's move to the next slide, please. In terms of economic growth, like Bangladesh has 85.24% GDP growth in last financial year, which concluded in June 30, 2020. And our projection for the next year is 8.2%, while various [ markets ] also forecasted various figures, like ADB has forecasted 6.8% growth in the next financial year -- means current financial year, which is going to conclude on next year. IMF has projected calendar year, like calendar year 2020 at 3.8%; 2021, 4.4%; and then again '22, very sharp recovery. World Bank though forecasted a little -- lower growth like financial year 2020, 2%; '21, 1.6%; '23, 3.4%. But I think we would definitely be able to grow much faster than what World Bank has projected and also like what IMF has projected, mainly because all the activities is now running in full swing, and we are on a faster recovery phase. So I think we could achieve a good number in the next financial year as well. Next slide.

General consensus is pretty much that about how much the growth will be. But whether it will be positive or negative is not really in question at all.

Right. Right. I think we're going to see a growth number, positive growth number? Yes. Then there's some clips of newspapers. Let's move to the next slide. So in summary, there we can see like economy growth is positive despite the pandemic and we are seeing faster recovery. Balance of payment, favorable; lower oil price and cotton price is also helping our recovery faster. So -- and also like good monetary and fiscal stimulus from the very beginning, like Central Bank started a stimulus from early April. So that has really boosted and provided much needed support. And as we have good space in terms of both monetary and fiscal side, so I think we have a good scope to really provide sufficient support for the economic recovery. I think if going forward, if we need any support as well, I think we are really in a good position compared to many of our comparable countries. In terms of market, because of expansionary monetary policy and this is for the first time Central Bank really indicated very strong measures like cutting CRR aggressively, cutting the repo rate aggressively. And all these measures has really created and also because of buying significant amount of foreign currency from the market, and that has injected a lot of liquidity in the system. So the liquidity is ample and the kind of, as I mentioned, that the kind of monetary space that we have, say, at the end of December, our deposit rate was 8.5%, now deposit rate is 4%. So if we see the kind of monetary space has been created for supporting the economic recovery for businesses. So this is unprecedented. I think this support will continue from and -- in next year as well. So this altogether will definitely support us to grow faster, and this will again support quick recovery going forward as well. On the government security side as well, because of this excess liquidity and the Central Bank measures has collapsed significantly. And because of higher demand as well, it has come down significantly, and we expect the yield to be at a lower level going forward as well. And then Central Bank also extended and moratorium period until December. This has also supported the businesses. I think we have -- from the last -- this last quarter, I think we are seeing some repayment happening. I think we will be seeing good recovery by the end of this year. I think this is the end from my side.

We'll talk a little bit more on that once we get into the individual businesses. And when we hear more from our Head of Credit Risk Management, Ahmed Joy as well. Thank you very much, Shaheen. Shall we move on to one of our important customer segments. And I will welcome Syed Abdul Momen, who is better known by his nickname Tomal, to talk about -- us about how the SME business has been coming along over the last 9 months.

Thank you, Selim bhai. SME business since the start of beginning of the pandemic, as we have said earlier that we have first done a survey to initially when the lockdown started to find out how our customers are doing. So -- and we have actually continued this survey every month to understand the changes. So our last survey was done in August. And here, we are presenting a comparison and this will show you the trend how the SME business are in the right path or in the recovery path. So if you see that almost 98.5% of the SMEs are now open, which were pretty low when it first started, only 33% businesses were open. And if you look at the sales percentage, which we see that almost 68% have recovered up to August. And our projection is by October, 90% plus will be recovered. And actually, it has happened. It has happened actually more than our projections. So -- and also in terms of employee presence at the SMEs, that has also picked up, like it was only 41% employees were present. Now it's almost 80%. Now if you look at the cash flow status, that has also significantly improved. Almost 80% of SMEs have collected their receivables, which clearly shows that the supply chain has revived, and things are coming back on track. Next slide, please. And if you look at our business numbers quarter-by-quarter, you can clearly see how the survey results has reflected our business numbers also. Like if you see in Q2, everything were like during the lockdown, but our numbers have significantly jumped up. And as usual, in terms of loan disbursement, the small business segment, which is our core competency, they are leading and we have done almost like 22,732 loans in only in Q3, which was only 3,000 in Q2. And if you see the segment-wise graphs, then you will notice that it has been driven, especially by the small business. Now let us look at the deposits. The deposits have also grown pretty significantly. And if you see the number of accounts that we have opened, it is quite high in Q3. And this is also driven mainly by the small business and also branch have contributed significantly. So on the deposit side, also, we are -- it shows that the businesses have revived and things are coming back on track. Next slide, please. So if you see in terms of customers, in Q3, we have -- in our book, there are 6,000 new customers, which is 10x more than Q2. And also now the total customer number stands at almost [ 3,11,000 ]. And our assets, we have disbursed of 22,732 loans, which is 7x more than Q2. And the assets growth volume is also more than BDT 1,000 crore. We have done only BDT 200 crore, which is 5x more than Q2. Total asset portfolio have also grown by 21% compared to Q3 '19. And we have also really pumped up our disbursement from the government stimulus package. And in -- and so far, we have disbursed almost more than BDT 700 crores, but in Q3, we have disbursed BDT 300 crores. Deposits, you have seen has significantly grown in previous graphs. You have seen that. But the most interesting bit of SME deposit growth is the growth in CASA. Like if you see our deposits grown by BDT 575 crore and almost 90% of that is CASA. And this is the highest SME CASA growth recorded ever. And the CASA portion, if you compare between Q2 and Q3, this has resulted in a very high percentage or betterment. Like if you see in Q2, our CASA percentage in the total deposit portfolio was only 57%, which has now moved to 62%. Trade business is the only business where we generate nonfunded income. So the trade volumes have also grown 28% more in Q3 than Q2. And also commission earnings have improved by 40%. Next slide, please. Now if you look at the portfolio quality, almost 76% of our customers were still under moratorium. And 30% customers, this is a very exciting news, that 30% customers who were under moratorium paid around BDT 2,112 in Q3. So this proves that though the customers are under moratorium, but as you have seen, the businesses have revived, so they have started paying. But if you look at the PAR and NPL percent, obviously, it remains the same because of the moratorium. But we are pretty confident that when -- once the moratorium is lifted off because as the business have revised, our collections won't be hampered that much. So in terms of products, we are -- we have heavily focused on IT and IT-driven businesses. And we have joined hands with BASIS and launched a new product customized for the IT industry. And another major thing that is our core focus now after the rate cap is the cost income ratio. And we have taken various measures earlier, which we have told you in earlier earnings disclosures, and those measures have started producing results. So we have started reimbursing that actual cost from the customers as per the definition of the regulators. And also, we have yet merged a couple of unit offices for better synergy, which will produce annual savings of BDT 1.68 crore. And incremental NFI of BDT 1 crore has come because of the new asset and liability [ SOC ]. And also cost income ratio, we have successfully reduced by 21% in Q3 compared to Q2. And also, regulators have been there by our businesses, and they have extended the loan moratorium up to December 20. But we think that as businesses are reviving, the SMEs -- a good number of SMEs will come out of moratorium during the last quarter of this year. Next slide, please. Now if you look at our priorities in quarter 4, we will continue our growth momentum, focusing especially on small business and on the deposit side. We will venture into new customer segments through customized products and partnerships. And in terms of assets, we want to substantially grow the small business assets. As you have seen, the businesses have resumed. And the productivity side, our focus will continue. And we have done all these business numbers, which we have seen so far, we have done this without any additional headcount since June. So -- and that has positively impacted our cost income ratio. We have also working a lot more. We have taken various initiatives to digitize our lending operation. And some of these small initiatives are already live. And by quarter 1 '21, we are expecting a lot more initiatives to go live, which will have an impact on our staff efficiency and cost. We have rolled out scorecards for automated credit decisioning. We have also exploring some lending partnership opportunities with fintech and e-commerce and telecommunication platforms, and we expect some of these to go live in Q4 also. So in terms of deposits, yes, you have seen that we have grown quite significantly from -- in quarter -- starting from quarter 2 and quarter 3 was amazing. And also, we have -- we will continue that, and we will keep our focus on improving the CASA mix further. And the trade business, obviously, this is the only source of fee income, so we will accelerate in our trade business also. Next slide. Next slide, please. Portfolio quality, as I was saying, that we, as the businesses have resumed, so we expect almost 70% of our customers will come out of moratorium. And we have enhanced our strength and our relationship with the customers. And we are -- as you see, like from the very beginning of the pandemic, we have actually strengthened our -- and by relationship strengthening, I mean, like earlier, if we would have visited a customer once, now we visit twice or thrice. And by doing so, this will help us to bring more customers out of moratorium. And our recovery team has been strengthened so that if there are any deterioration in the portfolio, we expect our strength, and recovery team will be able to handle that. And in terms of product, yes, we will carry on our focus in doing more and more IT-based industries because this is something new. This is a new segment for us. And we'll also launch new assets and liability products for the women entrepreneurs. This is also -- which is better known as our TARA product under TARA umbrella, and we want to significantly grow there also. In terms of cost/income ratio, we will further reduce cost/income ratio. Our -- all our endeavors will continue and some of -- and as they flourish, the cost/income ratio will keep on reducing further. And our target is to reach pre-rate cap cost/income ratio by Q4 '21 at 9% in this rate. And regulator's support, we are expecting that the credit guarantee scheme, especially for collateral free cottage, micro, small customers will be live in Q4. So that is our expectation. So that's all from SME side, Selim bhai.

Thanks very much, Tomal. Just to recap, this business has started growing very well again, acceleration in both the asset and the deposit campaigns. July, August, September were great months, October, November as well. So that momentum will continue right through to the end of the year and going forward as well. Thanks again, Tomal. Let's listen to Mahiul Islam talk about our retail business.

Thank you, Selim bhai. Good evening, everyone. I will share the retail banking updates. We had a good growth momentum in third quarter of this year. Yasir, if you go to the next slide. Our retail customers grew by 25% year-on-year, acquiring 69,000 new-to-bank customers during this year. Our core focus continued maximizing on retail deposits, where we have grown by 15% year-on-year and 10% year-to-date despite the COVID challenges with a healthy CASA mix of 67%. We have significantly reduced our retail cost of deposits by 152 bps compared to full year '19, and we are driving various projects such as e-KYC, which is also directed by Bangladesh Bank; business process reengineering with Deloitte, a consultant to optimize and digitalize our existing processes. Due to COVID-19 situation, we have been conservative in growing our retail loans book, which grew only by 4% year-on-year as we have slowed down our assets momentum during the second quarter of this year. However, from October, we have started focusing on retail loans and expect the momentum to build in quarter 4 this year. In terms of credit cards, the book grew 18% year-on-year. And the good sign is we have started to observe card spends picking up, especially in the third quarter. As far as our retail loans portfolio, that got impacted in COVID-19. And if you look at -- if you go to the next slide, Yasir. In terms of portfolio quality, the PAR increased to 5.6% compared to 4.4% of last year. However, the NPL was reduced to 1.8%. So we have managed to keep the NPL at a lower level. We have observed positive repayment signs from retail loan customers from October onwards, and only 5% opted for moratorium during the third phase of the government settlement. So we expect that when we -- we have also done surveys for retail loan and credit card customers. We have observed that the retail customers are now more concentrated on the repayments rather than continuing on the moratorium. So that's the trend that we have observed for the retail loan portfolio. In terms of acquiring business and partnerships, we have been active during this year and signed around 1,000 new merchants as well as deployed 1,400 new terminals. I'm happy to share with you that we have regained our merchant acquiring business momentum. And recently, for October, we have achieved the highest acquiring volume growth of BDT 299 crores during October. So the spends and the overall momentum of the growth has been picking up. We also had an excellent growth of 51% year-on-year in remittance transactions, which resulted in our NFI income growth of 39%. If you move to the next slide. In terms of new acquisitions for retail loans, similar to SME, as Tomal was mentioning, as I mentioned earlier of -- sorry, in terms of retail deposits, yes, we have surpassed our Q1 '20 figures, and book totaled 45,718 deposit accounts. And there was very good -- it was very good deposits across all the products compared to the sharp decline that we have seen in quarter 2. Now if you move to the next slide, which is in terms of new acquisition for retail loans. As I had mentioned earlier, we have been conservative and remained watchful during quarter 2 and quarter 3 of 2020. From October only, we have started to focus on retail loan products. Credit card new monthly acquisitions have increased already to 3,011 in Q3, and we expect to go further. So overall, it was a good third quarter for retail banking in terms of customer acquisition, deposit and credit card balance growth as well as high remittance volumes. Looking forward, now if we come to Q4 priorities for retail. It will be to continue to focus on deposit drive through CASA, revamp our employee banking to capture market share jointly with our corporate banking team in line with our strategy to build this chosen segment for sustainable low-cost CASA as well as also, we will focus on cross-selling credit cards and personal loan for this employee banking segment. For our frontline staff, we will be launching our sales app called Obichol in November to reduce the new acquisition turnaround times as well as for effective application tracking. We will continue to focus on collections and recovery for -- of our loans with enhanced teams of retail and brand sales and the new changed process. So that's all from retail banking side. Thank you.

Thanks very much, Mahi. So essentially, the last 9 months have been very good in terms of the deposit mobilization for retail banking and very naturally from April onwards, we were very conservative with regard to asset growth. And those cycles have just been taken off, as Mahi was telling you. And from October onwards, particularly from the second half of October onwards, retail asset growth has begun. And by the end of the year, we hope to achieve the kind of momentum we had in December last year, January and February of this year, too. Thanks very much again, Mahi. If we can move on to the corporate banking team and Tareq Refat Ullah, our new Deputy Managing Director and Head of Corporate Banking Division, will take over now.

Thank you, Selim bhai. Good evening, viewers. [Foreign Language] Before going into business performance and figures, I should briefly narrate a few matters, which will help you understand the overall aspect of corporate banking business. Corporate banking division started financial year 2020 with a positive business outlook. Overall, portfolio performance and profitability has grown steadily till first quarter, I mean, March 2020. Bangladesh then entered into countrywide lockdown in April 2020, which extended until end of May. Due to pandemic situations, offices and factories were totally closed. To note, 95% of our corporate banking portfolio is directly or indirectly manufacturing based. As manufacturing activities were totally closed in April and May due to pandemic, the overall impact on profitability and business outlook have been severed. We analyzed the overall situation well and developed various measures to analyze and customers -- month-to-month sales of our customers over the same period of 2019. Sales figures of April and May 2020 compared with the same month of 2019 showed declination of approximately 80% level. However, we have observed light at the end of the tunnel as businesses shown rebounding trend since June 2020. In last 3 months, we have observed that sales of our customers are even surpassing the sales figures on the same month of previous year, or within 5% to 10% variance. Still, overall revenue of the customers decreased by 15% to 20% year-on-year. Our customers have shown positive intent and resilience to overcome the overall severity of the pandemic's impact. In line, we have also extended our wholehearted support to be at the forefront of our customers to assist them in all feasible way to cope up better. A few of our initiatives successfully rolled out, our government declared stimulus packages to our customers. Loan generation as per Bangladesh Bank decision from time to time to provide flexible and cushion to customers' cash flow and [ GP ], et cetera. We have observed that majority of our customers, including our top 20 customers have been able to cope up with the stress situation well to continue their businesses. Repayment has been regular and no significant overdue has observed except a few cases. However, the customers which who are facing tough time during pre-COVID situation -- scenario, I mean, in the first quarter of 2020, for various reasons, have been continually stressed in post-COVID situation as well. We assume that business challenges have mounted in the pandemic time, which has changed their cash flow as well as overall business further. We should mention that a commendable portion percentage of our corporate banking portfolio is under RMG, textile and backward linkage industry. Overall performance of the industries are heavily linked with their buyers as well as various country's overall situation. As we have seen, since lockdown days in developed countries, I mean U.S. and particularly in EU, export order flow has reduced significantly for obvious reason. Post lockdown, this has been improving, which is quite evident. However, if EU and U.S.A. enters into all-out lockdown again, which is highly probable due to second wave of the pandemic, this industry and related customers will be deeply impacted in the shorter and longer term. These are very crucial factor overall sustainability of the RMG, textile and backward linkage industry. But as a responsible and prudent bank, our strategy is to provide financial services and require support to our customers so that they can cope up better and can perform sustainable businesses. We'll continue a strong relationship management, regular monitoring and advice to our customers for their betterment. This will provide us better visibility and control over their businesses, which is also aligned with our vision to become the best corporate banking partner for our customers. Now let me elaborate major aspects of corporate banking businesses. I will start with deposit, obviously. We have continued our focus to provide customer solutions, which resulted in a significant growth in deposit. We have achieved 10% growth year-on-year, which is mostly contributed from CASA, I mean, current and savings account. Our CASA has grown significantly at around 54.9% year-on-year, which has also helped us to improve our CASA:TD ratio that is currently, I think, have gone 56:44 which was previously 36:64. I mean TD portion was much larger in the last year. So the improvement is quite significant. This has positive impact on our minimizing cost of deposits by further 215 bps. Currently, we have one of the lowest cost of deposit in terms of -- I mean, in the local banking industry in the -- particularly in the corporate banking segment. Key differentiating factors for such improvement are our capability to offer customized and cost-effective solutions. Current corporate deposit is among one of the highest in banking sector, and we aim to continue our efforts for the rest of the year. We target of adding many new transitional accounts in -- particularly in public, public segments, MNCs, development organizations and institutions' initial corporate accounts. Cash management and transaction banking are our key focus areas as our strategy is to be the best transaction banking partner for our customers. To achieve that, we have adopted customized and solution-driven approach to provide comprehensive productions, particularly in payment collection, payroll, et cetera. We have continued to focus on digitalizations, which is delivering results actually. Some of the digital initiatives are expanding our digital payment solutions, that is our own homegrown software that is partner to a wide number of customers, online duty and debt payment integration, salary payment capabilities, including corporate solutions, et cetera. We are continuously trying to develop new products to strengthen our footing in transaction banking arena. Having said that, we have developed and rolled out new product already in this year. In terms of loan portfolio, the loan portfolio, on the other hand, de-grew in line with our risk appetite. De-growth is observed mainly under OBU book, which is due to overall economic situations. Main factors behind this de-growth are particularly negative input growth, trade discounting substituted by corresponding banks, available low-cost refinancing facility, particularly from Bangladesh Bank side, like EDF, GTF, LTFF and other products. Direct lending from the different development partners. However, considering liquidity in the market and lower OBU fund cost, we are focusing on OBU growth in the coming periods. I should mention that, we have been able to reduce exposure in stressed accounts, and also few one of our transactions were adjusted in this period. New accounts onboarding remains slow because of the industry, and however, we have emphasized on portfolio quality to reduce cost and vulnerability. 94% of our cost -- corporate loan portfolio is rated by external crediting agencies having positive to -- which is having positive impact on our CAR. We have completed takeover deal executed for one of the stress companies, which was in -- particularly in a nonperforming arena previously and could have been gone to a lot of situations. We have also introduced quarterly account review with DP analysis and review of account strategy to strengthen our monitoring system. Yasir, could you please go to the next slide, please. Now I will elaborate our priorities for upcoming periods. The last slide, please. On this side, our strong focus will continue to strengthen our transactional banking preference. Also, we'll continue a strong position to minimize our cost on deposit further. We'll enhance our initiative to transform account activities more into digital platform to enhance efficiency. For loans in advance, we focus on exploring potential areas such as project financing opportunities and government stimulus packages, and also publish segment. Our key strategy will be to grow portfolio with our customers, which have proven track records. Also, we'll extend our wholehearted support to provide moratorium and restructuring of limits and outstanding stress accounts, which are circumstantial due to pandemic situation. We'll continue a strong persuasion of growing our OBU portfolio and trade-based solutions to enhance our NFI businesses in the coming 2 or 3 months as well. Portfolio management remains our key focus areas for us. We are closely monitoring our customers' businesses performance and extending necessary support as and when required. For upcoming period, our loan -- our priorities will be monitoring performances indicators, such as sales, stocks and receivables collections and bank liability collections, et cetera, at least quarterly if not monthly. We will also review accounts under stress situation, revisit account strategy quarterly. We'll monitor business performance, review sector-wise portfolio and extend necessarily support to our customers whose business have been adversely affected by the pandemic. Let us remain optimistic that impact of pandemic on business will slow down over time and economy rebound strongly. We look forward to better and brighter future and intend to be prepared for any future adversity to remain sustainable. Let us all embrace the challenges and look forward to push through. Thank you so much, Selim bhai and others.

Thanks very much, Tareq Refat Ullah for giving us a sense of what the corporate banking division has been doing over the last 9 months in, particularly the stressed environments. Shall we move on? Yes. So what we'll do now is give you a few slides on our -- which will reflect how the loans and deposits have grown over the last 9 months compared to yesteryears. Next slide, please. And the first one is about customer deposits. You see '18, '19 and '20 third quarter figures here. '20 shows a 15% growth over last year. Deposits have been a very significant success story for BRAC Bank over the last 9 months. Our strategy has been, of course, to grow in the right areas, which is, in turn, growing CASA, that's obviously been our number one strategy, but that is also supported by our focus mainly on retail, where the client relationships offer us both the ability to cross-sell other loan products such as credit cards and personal loans and car loans and home loans, things like that, but also because that client segment is less interest rate-sensitive compared to larger corporate and commercial businesses. If you look at the corporate and commercial business, there, while the growth year-on-year has been only 5%, you may recall Tareq Refat Ullah telling you about how that mix has shifted very, very significantly away from high-cost term deposits and high cost, short-term deposits towards more transactional business as a result of which the cost of fund for their deposit base has dropped very, very significantly and at close to $1 billion, the corporate banking deposit portfolio is amongst the largest in the country as well. Another big success story, particularly over the last 3 or 4 months since July onwards has been the growth in SME. That has -- you can see, it's a whopping 32% year-on-year and reflects that the change in KPIs, new product design, new incentive schemes, that is working quite brilliantly with anything between $12 million to $15 million of current accounts, transactional business being added on to our portfolio every month. So deposits, although driven by retail, are aligned with our overall strategy. And as I'll show you a little later are, bringing us very, very good dividends in terms of the overall interest rate spread as well. Next slide, Yasir. If you look at loans, relatively subdued 6% growth over last year. That is pretty natural since April, May, June, July were all very, very slow months, particularly for the corporate banking, retail banking business. As I said earlier, SME, the cottage, micro, small portion particularly started accelerating from July onwards, and that is growing very nicely. We've also opened up retail from the month of October, but we are still relatively very selective with our corporate banking asset growth. Overall, relatively subdued asset growth, but you can understand why we were very, very selective, very conservative in this area. I think in the current environment, that is only to be expected. Thank you, Yasir. Next slide. Next slide, Yasir. Thanks. And to give you a sense of what the loans and deposit mix is. You can see how over the years, it's already improved to 47% cottage, micro, small; 18%, retail; and 35%, SME. Our plan is to increase SME, hopefully, to 50%, and perhaps retail will also grow to 20%, 21% over the next couple of years. The focus, obviously, for corporate, is to grow the transactional business and continue to derisk the corporate banking or wholesale banking asset base as much as possible. Shall we move on, Yasir? In terms of deposits, again, you'll see -- I spoke to you about what our plan is, and you can see how it's moved more towards retail, and SME also has increased over the last few years. The great thing about that golden piece, which is all retail -- is all corporate or wholesale, that is all transactional business and heavily current account-based. Next slide. And this you'll see is reflected in this slide where you can see that our CASA has now improved to 50%, that is a significant improvement from year-end last year. I think we started the year, Yasir, if I remember, at about 41%. So you can see 8%, 9% improvement in CASA over a 9-month period is a pretty significant achievement, and we expect this to only grow as all 3 client segments focus on CASA and as our new channels, particularly the agent banking channel starts developing more. Next slide. And this is where we show you the yield on assets, that's the top line there, the blue line. The bottom red line is our cost of deposits across the bank, and the spread is the green line over there. And you can see that the spread is about 4%, 4.12%. And while that is a lot lower to what we started off the year at, last year averaged at 6%. We expect that despite the interest rate gap on lending products, we will edge closer to 5% by the time we end this year. And then that improvement in our spread will be driven by both our cost of fund further coming down. And also, I think what you will see is the top line, the yield on assets also start to improve as our retail and as cottage, micro, small business will start accelerating their asset growth, too. Thank you. And this is essentially give you a sense where our loan-to-deposit ratio is. We call it the asset deposit ratio. As you can see, it's very comfortable. We're at 78%. This compares, Shaheen, to our prescribed, I think, 87%, right?

87.5%.

87.5% within all thresholds, not just this, but every other statutory threshold with regard to liquidity, is very, very comfortably achieved. Next slide. We ask our Treasurer, Shaheen Iqbal, to tell us about how the treasury business has come along over the last 8 to 9 months.

Yes, next slide. Thanks, Yasir. I think every market movement gives us some opportunity, and you really have to take that opportunity. For treasury, this was a wonderful opportunity and treasury has really grabbed the opportunity. This is -- this really is the best year for treasury business and we really showed that one, like we made very well in terms of all our business segments in terms of trading, in terms of fixed income, in terms of money market and all the products that we have, we really outperformed the market. And we are easily the leader in the treasury business market. And this clearly shows that the kind of grabbing that we have over the market. So in general, I can say that this is the best that we have done so far. And we hope to continue this performance going forward as well. I think that's it from my side.

Thanks very much, Shaheen. Obviously, there will be some questions in this regard when we'll come back to you later on. Let's listen to Ahmed Rashid Joy as he's better known. Joy will talk to us about another area. I'm sure all of you are very interested in risk management, particularly credit risk management.

Good evening, everyone, here in Bangladesh. And given the scenario, our Q3 NPL was 3.20%. Now practically, we do not have much optionality [indiscernible] regulations and this situation in mind as we all -- while maintaining loan loss provisions, we are almost 90% aligned with the internationally accepted 90 DPD approach, 90 days past due approach. So we provided around BDT 2.26 billion as loan loss provisions in Q3. And for this, [indiscernible] ratio has improved to 151% in Q3 compared to 123% in Q2. On 90 DPD basis, this is 90%, as I said earlier. And given this loan loss provision amount in Q3, our credit cost has increased to 114 bps, which is 1.5x higher than the last 4 years' average of 78 bps. I think my network is in -- we have -- I have a problem with my network, but I'm continuing.

May I request you, Joy, to turn off your video. That will give you more bandwidth.

Sure. So could you hear me anything, what I said earlier, okay? So what I said earlier is that while maintaining loan loss provisions, we were almost 90% aligned with the 90 DPD approach. And we provided around BDT 2.26 billion as loan loss provision in Q3. And for this, our credit coverage ratio has improved to 151% compared to 123% in Q2. And on 90 DPD basis, this is 90%, as I said earlier. Given this loan loss provisions amount in Q3, our credit cost has increased to 114 bps, which is 1.5x higher than the last 4 years average of 78 bps. So you will now understand the magnitude of loan loss provisions that we maintained. Now since majority of our retail and SME borrowers voluntarily opted to discontinue moratorium in the last quarter, we have significantly enhanced our monitoring and collections effort during this time. And this is very important, what we understand. And we will continue to monitor big corporate accounts on a quarterly basis with the sales and receivables, collection and bank liability position, which Tareq already said. The ongoing prudential moratorium in Bangladesh is expected to end on December, so far we know. And our primary focus is to strengthen bank-wide mergering and collection system just to encounter the post moratorium scenario. And we understand that this is very important, along with keeping loan loss provision in a prudent manner that we provided already. Next slide, Yasir. This is our asset quality on 30 days portfolio at risk basis. In last quarter, it was 5.3% for [indiscernible]. SME is 3.2%. Corporate was 7.9%. So this is on 30 days past due basis. Next slide, Yasir, here. The NPL slide that, as I said, we follow the prudential definitions. We do not have much liberty to go beyond this. So our BRAC Bank's NPL ratio was 3.2% in Q3. SME was 2.2%, retail, 1.86%; and corporate, 5.3%. So that's all from my side, Selim bhai. Thank you.

Thanks very much. And of course, we'll come back to this later on. I'm sure there'll be questions. Thank you, Joy. Shall we move quickly to Nazmur Rahim, who will tell us about a very important part of our bank. Our efforts to migrate towards what we call alternate banking channels from historic or traditional bricks-and-mortar. Nazmur Rahim? Unmute, unmute, Nazmur.

I'm sorry. I'm sorry. Thank you, Selim bhai. Good evening, everybody. Our alternate banking channels, comprising of ATM/CDM, call center, agent banking and Internet banking channels continued to grow more in the last quarter. Though we have observed slowness in April and May due to pandemic, the numbers started rebounding from June. Average customer calls at call center went up to 200,000 per month. On a positive note, we have migrated nearly 40,000 subscribers into Internet banking, who were using traditional bank channels. Interestingly, we have seen financial transactions worth over BDT 600 crore in the month of September for Internet banking. On the physical side, we increased 26 agent outlets by penetrating more in the rural areas. As part of usage optimization, we have replaced ATMs for low usage places to some more demandable areas, and this is a part of regular exercise to optimize our ATM usage and enhance our productivity and ensure sustainability in this area. Next slide, please. In agent banking, we have opened 16,000 customers, mainly in retail and SME segments. And during this quarter, we grew our deposit book 3x of what we achieved in the last 18 months. On the asset side, worth of BDT 235 has been disbursed as SME loan in this quarter. Remittance showed good numbers by opening up new exchange houses through this channel. And more importantly, we have observed a significant business in the corporate distributor deal collections to cater our corporate segment customers. In the rest of the year, our priority is to open the basic services to our existing branch customers so that they can use our agent banking channels through their accounts. We shall also expand the corporate distributor-based collection to cater the corporate segments widely. Next slide, please. Optimizing ATM and CDM locations will be an ongoing activity, as I told you earlier. We'll integrate with another card payment scheme, apart from Visa and Mastercard in the ATM channel. We have opened call center accessible to agent banking channel customers as well as to the agents and have introduced more services like certificates, statement delivery using our call center to divert branch -- from branch to alternate channels. We have opened Internet banking facility to our solo credit cardholders so that credit card holders can see their credit details and download the last 6 months' statement and make different transactions through this. We also opened international SMS facility to cater our NLB customers and made enhancement in some Internet banking security features to build customers' confidence on this channel. To summarize, alternate banking channel is an instrumental channel to keep the bank alive through providing the basic services to the customers. We believe that the customers of all segments will divert from traditional branch channels to this low-cost and convenient channel. And through this, our alternate channels will be an integral part to achieve our bank's overall strategies. Thank you. Selim bhai, should I move on?

Yasir, next slide.

Sabbir bhai, please continue.

Yes. Thank you, Yasir. Good evening, everybody. I would -- next slide, please, Yasir.

Sabbir, just a second.

Please bear with us, we have a slight technology glitch, bandwidth issues.

There you go. Thank you, Yasir. Yes. I'll give you a glimpse on our digital initiatives, especially at this part of the year, when we have pandemic situations everywhere. But our key projects are on track, thankfully. Not without hardships or difficulties. We are putting an extra effort to deliver as promised. The number of projects also were completed during this period. As far as digital initiative on activations are concerned, we are really capitalizing on the customer drive at this point in time. They also want it, so there is a demand. And at the same time, we also have our bandwidth to spend on that leg. Not only from call center, from branches, from sales, from all channels, we are actually engaging the customer to deliver on all the values that we had to deliver from a digitalization point of view. It's on Internet banking, it's on activation specific to Internet banking channel. It's on particular aspects of Internet banking as to what all customers can do. Not only that, it's also on the ATM/CDM channels. So we are getting more and more customers on those channels, not only by the existing features, but we are also offering new, new features on these channels. During this period, we offered a number of those, especially I can mention on the enhanced transaction limits, and that's very unique to BRAC Bank. Actually, we initiated the regulatory talks to increase transaction limits. So that customer can feel that freedom, and it's really liberating now that they can do everything from the comfort of their home. Nazmur touched it a little while ago that our numbers have grown significantly, both on these alternate channels. We will continue this initiative. Next slide, please. So this is a very interesting slide. The transaction shift we are going to demonstrate in here, it actually depicts our focus on migration from analog to digital, very simple slide. And here, significantly, I have two towers, one this deep blue color, which is actually manual transactions. As you see, it is always high, high, high. But on the bottom, you see the light blue color, it's growing and the growth is significant, as you can see. So at the beginning of the year, we had our 23% transactions digital by volume. Now in September, it is 37%. And until September when we measured it, we also could not believe that it has such a propensity to grow now that we believe it will pass, say, 40% by the end of this year, and the journey will take us quite far, I'm sure you would see. Now the lines that you see are the transaction numbers, the total transaction numbers through these alternate channels. Alternative channel, we mean anything other than renewal. It can be ATM. It can be in Internet banking. It can be our corporate solution through to which corporate customers and digital transactions and all. At the same time, it also has all the MFAs and other wallet-related transactions. And those numbers are significantly growing because customers are finding more and more value. And we are also connecting to all the channels wherever we find value. In fact, we are the most connected bank at this point in time, that we can claim, and it's only growing. You can see in June, and there is a hump. And there's nothing, but during the pandemic period, this channel was heavily used. In excess of 3 million transactions we could cater when Central Bank wanted us to deliver COVID-related assistance to the vast population. So that's what we did in association with bKash. So we expect these channels will be used more and more even later this year as well. So that's what we wanted to depict here that our focus is to grow digital transactions really, and that's really working. Thank you.

Thank you, Sabbir. If we can just spend a minute more on this slide, Yasir. This is something new that we're showing all our stakeholders, but it is aimed at moving transactions from what we call manual bricks-and-mortar analog platforms to digital and alternative platforms. Why are we doing this? The cost, firstly, of the analog platforms is 3x, 4x, in some cases, 8x more than the cost of doing it in alternative channels, number one. Number two, the quality of the service itself, the overall customer experience is far superior when customers use these alternate channels. And number three, very importantly, once you move to alternate and digital channels, the controls over the entire transaction are far superior and the overall slippage, leakage, frauds, mistakes, et cetera, are much, much lower as well. So essentially 3 important benefits for us. Customer experience, reduced costs and an improvement in control. Thanks very much, Sabbir. Shall we move on? And what we'd like to do now, Masud Rana, our Chief Financial Officer, will take us through all the financials. But as we, Masud, into the financials, let's look at the bKash financials first, and we have -- Yasir, can we move to the bKash financials?

Before the financials, we have the performance, yes.

Yes. This is the performance slide. And we'll ask Kamal Quadir and Moin, our CFO from bKash, to take us through a couple of these slides first. Thank you.

Moin?

Kamal, do you mind if start?

No, I'll just go first on overall -- the overall performance of the company, and then you can go with the numbers. And so we'll make it -- if you have any questions, you can -- any of the participants can ask either myself or Moin any question you want. So the overall summary is that we have right now 48 million plus unique customer. And these are all verified individual customer, verified KYC. These are not MNO registration. It is purely Bangladesh Financial Intelligence Unit, prescribed KYC registered customer. And the transaction volume that we have anticipated. We are on course, same is our cash in and cash out transaction that we've anticipated at this point of the year. The dip that happened from late March to mid-May because we covered that very well. And we are on course of what we planned, the area where we end. The area that we focused during 2020 besides the overall business is our link with different banks. Obviously, including BRAC Bank and our focus on remittance as well as utility bill payment. And so those areas have performed very well. And of course, we are -- every day we increase our ad adoption, along with our regular customer base and -- at that front along with opening different horizons. It also gives the scope of saving our connectivity costs with a mobile network operator. So without going any further detail, I will also tell you that the new areas that the business is growing is collection. We are doing large collection volume for different MFS operator as well as corporate houses. And the payment area and the growth was not as spectacular as others, primarily because of the COVID impact. But since September -- since July, I would say, payment is also growing. So right now, around 100-plus thousand shops are accepting bKash payment. And the other area that is getting the spectacular growth is add money to be placed in credit card and bank accounts to bring money straight to the account rather than depending on the agent network that we have. But besides -- but I must also mention that we have perhaps one of the strongest Asian network in the world. We have 250,000 retail agents across the country. There's no place in the country where within walking distance you can find a bKash agent network. We are becoming a market leader in utility bill payment. And that's another area that we strongly focus. So that will be my general view on bKash. And Moin, if you could go through the finance number, then I think we have covered the most that we wanted to cover.

Great. Thanks. Thank you, Kamal bhai. So I'll -- I've got a very brief couple of lines, just to give you all an idea on how the performance has been in quarter 3. Quarter 3 has been the best quarter for bKash so far. As you can see on the chart, we clocked in $7.5 billion -- BDT 7.5 billion worth of revenues, the top line revenues, which was -- which over the same time last year, it's a 20 -- almost a 22% increase. And if you were to see it on a YTD September basis, we clocked BDT 20.6 billion, which again was about a 9% increase over last year. So in terms of revenue growth, there's some very healthy growth. And just complementing what the CEO just mentioned, we did take a dip in the second quarter -- at the end of the first quarter and through the second quarter and then now we have recovered. And as I said, September has been the best quarter so far. From revenues coming on to gross margins, we did about BDT 2.4 billion or almost BDT 2.5 billion worth of gross margins, which was for -- if you compare it with the same time in 2019, it was a 65% increase. And for first 9 months of 2020 and the first 9 months of 2019, that's a representation of -- that's an increase of 37% or almost 38% growth. So very healthy growth in there. And just in the same line of growth of gross margin, if you see the gross margin percentage, the gross margin, it's increasing. And this just goes to say that from a single product dependency, bKash is now diversifying into many other products and that the product mix has become healthier. And hence, we see a gross margin rate of 33%. So what was 33% at the end of this quarter. At the same time last quarter, it was 24%. So you see a very healthy growth there. I'm not going to talk about the customer numbers the CEO just mentioned. We -- at the end of third quarter, we did -- we were at 47 million customers, which we -- and this means that we acquired 9 million customers from the beginning of 2020. Yes. So that was really in brief on a very high level performance of bKash.

Thank you, Moin. We have another slide on bKash, mainly the numbers. Do you want to cover something from this slide?

Okay. I'll basically -- I'm not going to talk about revenues. I just talked about it. Gross profit, as just mentioned, if you see the gross profit number, the [ 439 ] remains flat. Interest income declined. This interest income that you see is essentially the interest income from bKash's own capital. That has declined for really 2 reasons. The effective interest rate has come down as most of us -- as all of us know. And that -- there's been -- as bKash continues the investments, both in technology and in marketing, the cash balance is declining. The operating expenses from last year this year has really -- has marginally gone down, but this is -- there has been some last year's provision agreement. That's why it's gone down. So really, the -- and you can see at operating profit levels, we were down. The losses increased by BDT 9 million. So yes, that's really -- yes.

Shall we also listen to some of the questions we have, Yasir, in relation to bKash?

Yes, certainly we have a number of questions we received from our overseas investors as well as through our Facebook and our question-and-answer channel. So first of all...

Can you a little bit be able to figure out right now?

Yes. Please.

Yes, yes. Yes. Okay. Okay. So the first question is about the interpreted regulation that's -- is there any impact in terms of positive or negative to bKash?

In [ general ], the idea that Central Bank was suggesting it through NPSP. bKash as a compliant organization, when Central Bank proposed this thing, we welcome the idea. And as a market leader, we think it's good for the country. However, Central Bank also postponed the launching of it on the day of its inauguration. So we live where the facts are, and the fact is it is not operational right now.

Okay. Thank you, Kamal. Another question is that your gross margin have improved. So tell us something about the drivers beyond this improvement.

So well, I'll give you briefly, and Moin can elaborate further if there's a -- if my answers aren't sufficient. We are focusing on, as Moin was mentioning on diversifying the products, okay? We were on -- primarily on as a -- in a country where this is the first time a digital payment, digital -- the kind of customer base we initially focus are -- the only use case they had was fund transfer. But around 84% of our revenue now has moved to fund transfer, but the remaining 16% is into other activities, namely payment and also collections. And so that has improved our gross margin. Also because we are not spending -- we are spending significantly less on the -- on sharing our cash -- our cash out revenue with the channel. Also, our -- the use of app has reduced our utility, our [ MNO ] bills significantly. So that is -- also has contributed, and that trend will continue. And I think in next 5 years, you'll see more diversifying products coming and more product that has bigger margin for the company. And I think -- we -- but we started our base with unbanked customer. But increasingly, you see that lots of bank customers also using our portfolio, the services that we offer. And that has increased the profitability because this new segment of customers are more prone to use the SaaS system for other services besides cash out. Moin, if you want to add anything, you can. I would limit myself here.

No, you've covered everything. The gist of the matter is that as we move away from the typical cash out, the margin will get higher, and that is what is exactly happening.

Yes. Next question is that how fast are in-store merchant payment are growing? And how the service is doing? I think some of the part has already covered by Kamal bhai. So if he'll want to elaborate further?

I think if you look at things like we have merchants, the many ways of seeing merchants, I mean, besides the shops, we have integrated with Uber, that is -- that's -- I mean, we think there's a tremendous growth opportunity that we have in Bangladesh for that. We are -- we mentioned about utility bill payment. I think -- we hope there is a bigger e-commerce platform -- platforms emerge in the country. All the e-commerce platform that we have, we are integrated with them. But not all the work can be done by us. We also -- these kind of things needs to be -- others need to come into the space. So any e-commerce platform or offline platform that is accepting our solutions, we will be very much eager to work with them. But the reason I mentioned about Uber because that is a different kind of merchant. And we also resolved that challenge of integrating with the international margin like Uber.

Thank you, Kamal bhai. Next question is very interesting from one of our overseas investor, is that how does the ANS financials IPO seizing? And is there any regulatory scrutiny you expect in your credit business and bKash?

Well, I do not have any meaningful information than what I read on the newspaper about ANS IPO postponing. We don't anticipate any review because everything that we are doing currently is fully regulated, and our regulators have approved what we are offering. And it's within the -- and we're basically the channel. And the lending pilot that we are currently doing, it's a product of a bank, and the bank has taken due permission from Central Bank.

Okay. Thank you. There's a supplementary question is that you have integrated with one of the bank in terms of credit lending. So do you have any plan to further extend with the other banks?

So it's again, I'd say it's -- one bank has sought approval from Central Bank and as other banks see similar approval, use us as a channel. We remain open to that. And however, it will be a good opportunity for us to learn from the bank that we are doing this pilot. And I think after the pilot is done, I think sufficient knowledge will be there for further expansion.

Okay. So far, we have gone through all the question, except one, is that someone actually curious to know about the -- one of the competitor [ Novus' ] regulation. Is there any changes? And you see the impact on market share of bKash.

Well, because bKash is regulated by Central Bank, we only get to see the operators who are reporting to Central Bank because Novus data, as far as we know, I mean, I saw the most prominent finance news paper report it even yesterday that data they published, Novus' data was not included because it's not included into the monthly report Central Bank provides. So we don't have much knowledge about their data. But they're in the market, we -- bKash, as a pioneering service, we built the agent network and many other services. And we expect -- but it's very natural that others will be coming in the market gradually. And because we never get our agent network exclusive. It is -- we felt it is our responsibility to being part of the -- having a social uplifting agenda in our mind. From the very beginning, we thought it is important that the agent network should be open. And anybody should be able to use the agent network for expansion of their business. So our agent network is available for others to use. And even though they're all trained them and the network is built by us, it's very -- it's completely all right to us that others should be using that. And that's what's happening. And we welcome that very much. But we always emphasize the importance of rules and regulation. And Central Bank is very engaged, and we'd like to see all the operators who are providing service in the space are under the surveillance of a common regulation. And that's the way we operate, and that's the kind of guidance we have been -- we, as a management, has been receiving from our Board, and we've obliged to that.

Okay. Kamal bhai, there's a common question each and every earnings this to the program is about the number of -- the indicators in terms of you already mentioned the number of customers, the merchant, the hedging points. Some of the area they want to know about the current market share, and is there any, like, aspiration to increase the market share...

We are -- I understand -- I'm sorry, I'll let -- please, you finish first.

And then vis-à-vis, do you see the transaction volume, and how it's compared to last year. So isn't it published?

Yes. So we are a lead market player in this space. We do not -- we only know how our -- transaction number, which we shared with you. It's difficult for us to really say what is the market share we have. But I would say we are the leader in the space. And as a lead market player, we operate as responsibly as possible and something that my Board believes. And I personally, along with my management beliefs, is providing absolute compliance service. And that's what I want to emphasize again, that we -- if there's one thing we focus, we focus on the quality of the service and long-term value of providing a very compliant service. The reason it's very critical because our service is not like a bank's operation, where we need to -- we have field operation. We have field monitoring. So those things, we emphasize very much and as an entity related to Central Bank, we get our regular inspection from Central Bank. And so far, it seems we are on the right track.

Thank you, Kamal bhai. So these are the questions so far regarding bKash. So Selim bhai?

Thanks very much, Kamal and Moin. What we'll do now is move into the financial discussion that we had planned earlier. And we'll ask our Chief Financial Officer, Mr. Masud Rana, to start there.

So -- then I have a quick question to [indiscernible], Selim bhai.

Please, go ahead.

Mohin and I leave the meeting at this point?

I think that's over. The -- as far as bKash is concerned, we've given all our stakeholders, analysts a chance to speak, put questions to Kamal and Moin. And they've also taken us through most of the numbers. So we'll try to -- if we have any questions later on, please feel free to send them directly to me. We'll try to answer as much as possible today. And we'll also get responses back from Moin and Kamal later on. Thanks very much, Moin and Kamal.

Thank you.

Shall we move, Yasir, to the financials, and Masud Rana can begin?