Bangladesh: The City Bank goes all-in on digital

When Asiamoney visits Dhaka in January, there is only one topic bankers want to talk about. Sohail Hussain has just quit his job as managing director and chief executive of The City Bank, one of Bangladesh’s best-run and biggest private-sector lenders, 10 months before the end of his second and final three-year term.

Hussain’s abrupt departure from a lender he has served with distinction for 12 years, including more than five years at its helm, is the talk of the town for days. 

Dhaka is big but the upper echelons of the banking sector are tightly knit, and in the absence of clarity or direction from The City Bank, gossip and hearsay happily fill the void.

The chief executive at one local lender, among others, points to a rumoured rift between Hussain and his chairman Aziz Al Kaiser, who joined the bank in October 2018. 

A few wonder if The City Bank simply had a so-so financial year. It isn’t out of the question: in the first nine months of 2018, the bank reported net profit of Tk2.08 billion ($25 million), down 10.7% from the previous year, and insiders say profit after tax may come in below expectations. 

As Asiamoney goes to press, The City Bank has yet to file its full-year financial report.

On January 17, three days after Hussain steps down from his post, The City Bank’s chairman decides to go public with the news. In an interview with a local news agency, BD News, Kaiser says the outgoing chief executive will be replaced by his second-in-command, additional managing director (AMD) Mashrur Arefin. 

No surprise there: Arefin is an intelligent, capable banker, long touted as Hussain’s successor.

Kaiser also refutes rumours of a dispute between himself and Hussain.

“This is not true,” he is quoted as saying. “He had been at The City Bank for a long time. He was with us for so long because of good relations.” 

But his other words give pause for thought and reignite chatter about a personality clash. The outgoing chief executive “did not want to stay with us for personal reasons”, he added. “Now he says he will get rest. He cannot perform his duties. That is his personal matter. As he cannot continue, the AMD in the pipeline has been made MD. There is no other issue here.”

To many in the financial world, resigning for personal reasons can be code for something else, the equivalent of a politician stepping down to ‘spend more time with family’. And book-ending your comments by telling the media the matter is closed, typically incites further speculation. 

But were his words just clumsy, as is certainly possible – the two, after all, have known one another well for two decades, and are by all accounts still close – or is there more context to be unpicked?

Keen to make sense of the situation, Asiamoney rings The City Bank’s new managing director. The next day, we sit down to talk for nearly an hour – which, given the state of play, and from a man still getting his feet under the table, is generous to a fault. 

Only the previous evening, the bank treated Hussain to a two-hour slap-up farewell dinner. And straight after our meeting, the new chief is due to meet finance minister Mustafa Kamal, also a newcomer to his post.

Arefin, whose respect for Hussain endures and is reciprocated, has already made the MD’s office his own. The long wooden desk remains, and the windows still needs a good clean, but the tobacco fug is gone. (Hussain is a heavy smoker, and constantly seemed to have a cigarette on the go, in contravention of the bank’s laws. This, according to insiders, didn’t go down well with the board.)

Time being precious, we get straight to the point. Did Hussain jump or was he pushed? 

“Mr Hussain resigned,” Arefin replies firmly. “His term was supposed to end in November 2019. He took [the] view that his successor was ready and that he wanted to pursue something else outside this institution. There was no force exerted on him by the board to resign.”

But was there a falling-out between chairman and chief executive?

“This was not the case at all,” he says. “Since his arrival, the chairman has brought in new ideas and strategies. [Hussain] has been a successful chief executive for the past five years, but the bank’s strategic ambition and strategic intent and goals and objectives have undergone drastic changes, and Sohail felt that he had been here five years, and it was time to pass the baton to his successor.”

When Asiamoney approaches Hussain for comment, he politely declines. His hands are tied by a non-disclosure agreement and he is still mulling his future. 

With nearly 30 years’ experience in the field – he started his career with ANZ Grindlays, then moved through the gears at Eastern Bank before alighting at The City Bank in 2007 – he is not short of options. 

At least one Dhaka-based bank is keen to hire him as its new chief executive and other offers are believed to be on the table, including one from a global institutional investor keen to set up its inaugural Bangladesh office.

Individuals close to Hussain say he was not pressed to leave. Besides, in Bangladesh, a managing director can only resign voluntarily or be actively removed by the central bank, which is the industry regulator.

As the managing director of a rival lender notes: “The board or chairman cannot force a departure. Either a chief executive resigns on principle or he doesn’t.”

But dig a little deeper and you find there is more to this than meets the eye. In the richer soil beneath, we find an ambitious institution on the cusp of an internal digital revolution aimed at turning it into Bangladesh’s biggest lender, and a genuine champion of financial inclusion. 

We also find an outgoing chief executive who, even before his departure, had one foot out the door, not to mention a new MD and new-ish chairman determined to make their mark on the bank’s – and the industry’s – future. 

At this point, it helps to look at the chronology. Around August 2018, according to individuals close to the situation, Hussain told The City Bank’s then-chairman, Mohammad Shoeb, and its board, that he would be leaving in 12 months’ time, shortly before the end of his second term. The agreement was mutual and it was, by all accounts, amicable. Hussain needed a new job after his term expired, and one of the offers on the table was as chief executive of a highly respected domestic lender with similar strategies and synergies to The City Bank.

According to bank insiders, the next big change occurred when Kaiser replaced Shoeb in October. 

Within a couple of weeks of his arrival, the new chairman went on a trip to Kenya to attend a conference hosted by the IFC, which owns 5% of The City Bank. 

Accompanied by Arefin, Kaiser visited KCB Bank in Kenya and met the minds behind M-Pesa and another East African mobile money pioneer, Tanzania-based Tigo Pesa. Hussain remained in Dhaka.

Over the previous two years, The City Bank had spent time expanding its IT team and piecing together a comprehensive digital financial services (DFS) strategy. Part of that process involved a long-planned move into agent banking, mirroring the likes of M-Pesa or Myanmar’s Wave Money, with the aim of introducing cheap and effective financial services to the unbanked hinterland. When Kaiser returned from Africa, The City Bank moved to accelerate its digital strategy.

Two of the lender’s chief domestic rivals, Brac Bank and Dutch-Bangla Bank, were already making a big splash with mobile financial services. Brac’s bKash is reckoned to have 30 million registered accounts and up to 13 million regular customers, while an estimated seven million customers use Dutch-Bangla’s platform, Rocket, to pay bills, transfer money and disburse salaries, and make ATM withdrawals.

The City Bank took a good look at a market where these two rivals have a 98% share and decided to tack to windward. Instead of going all-in on mobile financial services, it would widen its net in the hope of catching more customers. 

In late 2018, it joined forces with bKash and Grameenphone, the country’s largest telecoms provider, to bring The City Bank services to millions of financially excluded families.

The deal in turn allowed customers of bKash and Grameenphone to use The City Bank’s ATMs and online banking platform. A third new partner, China’s Ant Financial Services, was hired to help oversee millions of digital transactions and the seamless disbursal of countless tiny packages of credit. 

The City Bank’s existing plan to hire and install 1,000 mobile agents in cities and towns around the country over the next three years were also, one well-placed insider notes, “massively increased”. 

The bank is also working with Chinese bankcard service provider UnionPay to issue, in the near term, 500,000 credit cards. The City Bank was going all-in on digital. 

Arefin describes the bank’s DFS platform as “our dream”.

“We need to change our mindset to undo the perception that banking is only for white-collar workers and people of a certain social impact and standing,” he says. “I am not for ‘exclusion banking’ – and banking has always been like this, even up to today. My number-one ambition is to take the bank to the people, to the entire population of Bangladesh. We have limited ourselves to 1.5 million customers in the past, but the population of the country is 170 million.

“Currently we are a good bank, operating in big cities and smaller towns, but expanding our horizons and expanding scale doesn’t cost much these days if you are digitally extremely savvy,” he adds. “My aim is to be Bangladesh’s go-to retail bank. But the aim is to focus on micro-retail, which will include the current mobile-money mode of money transfer, including loans and advances and deposits and also shopping, making tie-ups with merchants vital. We are going to be working more with a large payment company – so that [our current level of] 1.5 million customers can become 10 million.”

Only one of Bangladesh’s 56 lenders, the Islamic financial services specialist Islami Bank, currently has more than 5% of the entire banking market; even the bigger commercial players are stuck around the 2% level. Insiders say if its overall DFS ambitions are realized, it will transform The City Bank into the country’s largest lender.

“This is our aim,” says one well-placed source. “It would push us beyond the 5% mark in a low-cost way. We would be ahead of everyone.”

Asked if it marked the biggest digital revolution in Bangladesh banking history, he replies with an unequivocal: “Yes”.

It’s ambitious, and Arefin has no qualms about adding more sauce to the soup with his goal of building The City Bank into a great institution, not just a good bank. 

Or, as he puts it: “An institution where the country’s greatest talents dream of joining us rather than foreign banks or multinationals. We want to be their first employer of choice in Bangladesh, and to convince expats to return to work here, whether they’re living in London or Mumbai or Shanghai.”

There is no doubt The City Bank has chosen its partners well. BKash and Grameenphone are highly respected brands at home, while Ant Financial’s reputation precedes it.

Arefin points to the fact that 95% of the bank’s roughly 150,000 daily transactions are processed in the branches, with the rest made up by a mix of ATMs, cards and online banking.

“We want to completely reverse that situation and to get to a place where 80% of all transactions happen through digital finance via our partners, and where we are fully automated and capable of issuing thousands of new nano-loans and nano-savings products to customers each day. I’m looking at everything being automated and typical loan sizes being $100 each.”

However, this is also a massive leap into the unknown. Rolling out an entirely new and comprehensive digital platform with the aim of attracting millions of new and mostly unbanked customers will not be easy, or cheap. Arefin says the bank is spending between $12 million and $15 million on the DFS platform, but that is likely low-balling the figure, given that the project also involves the hiring of roughly 1,700 people, swelling its staffing levels by 35% to more than 6,000.

The assumption is that the additional cost will be offset by new business. But, as one well-placed source notes: “There is no guaranteed path to revenue generation”. 

Moreover, the rules that circumscribe agent banking in Bangladesh are unhelpful from the lender’s point of view. While in, say, Kenya, about 100 banking agents – typically, respected pillars of the community – are managed by a single person, often but not always a bank employee, in Bangladesh the ratio, as set out under central bank regulations, is par.

Under current rules, it would mean each agent having to be supervised by at least one dedicated bank employee. That cost burden would, insiders say, make The City Bank’s DFS strategy financially unfeasible. The lender is in talks with the regulator to ease the rules, but the last thing it wants to do is build up its cost base and infrastructure, and then wait for the central bank to act.

This leads us back to the former chief executive’s departure, and the rise of his successor. During his time in office, Hussain introduced award-winning premium services to The City Bank. He was instrumental in convincing the Asean Financial Innovation Network, a Singapore organization that promotes collaboration between fintechs and formal financial institutions, to make The City Bank the only Bangladesh-based member of its club. But his expertise lay more in traditional corporate banking than in digital, a division that was championed and driven by Arefin.

In truth, it was the arrival of a new chairman that expedited Hussain’s early departure. Concerns were raised internally about the managing director leaving the bank and joining a rival at such a critical juncture, halfway through the rollout of its new digital platform.

“Was the chairman uncomfortable with him leaving, and possibly taking so many of the bank’s new digital ideas with him?” wonders a well-placed individual. “I would say the answer is yes. The City Bank was worried about its first-mover advantage being eliminated. This is the critical moment in the bank’s development. DFS is a good strategy but it is not without its risks, and Kaiser clearly believed it was better to have a chief executive who would be in place, not just during the roll-out, but for a long time after as well.”

That logical strategy may save all relevant parties – The City Bank, Hussain and whichever lender succeeds in tapping the latter as its new principal – a lot of pain in the long run. The City Bank needs to be sure that its former managing director isn’t taking with him any valuable digital secrets and strategies, consciously or not.

Equally, a future employer does not want to fear regulatory or legal reprisals each time it unveils a new product or partnership. By all accounts, Hussain, a good man placed in a tricky situation, felt the need to be proactive. 

Having been eased out of the loop on the bank’s new digital strategy, he knew it was time to leave through the front door in January with his head held high and find a new challenge in life.

This is the time for a local bank with resources and gumption to get a jump on its rivals, transforming itself, by dint of the right digital strategy, into a market leader for years to come. 

The City Bank, with its trio of big-ticket financial and non-financial partners, its dual focus on digital services and financial inclusion, and a new managing director at its helm, probably for years to come, believes it can be that transformative power.