When I wrote to you one year ago, just after assuming the role of the CEO, I laid out three broad goals for our bank. First, I wanted to improve the asset quality and maintain a sound and safe portfolio. Second, I focused on managing good liquidity and lower cost of funds throughout the year, which I figured would help generate high net interest margin and good profit after tax. Third, I wanted City Bank to be known for its smart and technologically advanced banking solutions in the various areas of its business. I want to reassure you that this three-fold focus has not been strayed from at any time and I would also like to reemphasize that I will not be complacent until we have fully reenergized our ever-continuing credibility with all our stakeholders.
2014 was a busy year for me as I had to meet and negotiate, in view of the prevailing macro market situation, week after week with our defaulter clients to make them regularize their borrowing exposures in order to free the bank from the ensuing NPL burdens. Our focus was on the improvement of asset quality and creation of selective new assets with the aim to maintain healthy portfolios. As this was done efficiently, we also simultaneously tried our best to ensure a good liquidity position and a lower cost of fund. That indeed gave us some additional strength. Like before, our effort has been to put in motion stable and predictable earnings; and to achieve meaningful long-term goals ensuring fundamental growth in every area. We kept our focus tight on our core businesses and never took the sight away from macro market conditions and from the cautious calculation of the associated risk factors.
Let me recap our progress in 2014 toward the realization of those goals and also let me lay out the agenda I have set for the bank for 2015 and beyond. In 2014, we passed another eventful year in terms of expansion and consolidation drives despite the tumultuous political and economic situation that prevailed throughout the year. Our triumphant journey continued as usual along the line of improving upon the trend-setting innovative banking solutions for which we are famous and well reputed already. We earned BDT 2,215 million as profit after tax – our largest profit till date. In this regard, we met and exceeded the commitments we gave to the Board earlier. With most advanced banks growing well below the levels that used to be taken for granted, and many emerging banks slowing considerably from their recent peaks, this result demonstrated the resiliency of our franchise and the talent of our people to perform even in a persistently challenging environment.
If I may now pinpoint a few macro-economic aspects of the past year, I would start by saying that despite various stresses faced by the financial sector, some positive developments also took place in the macro field in general and in the banking industry in particular. Gross international foreign exchange reserves continued to increase throughout the year. Inflationary pressure was at a tolerable single digit level. Liquidity position in the banking system also improved considerably as can be evidenced from continuation of low call money rate similar to that of the last year. Throughout the year call money borrowing rate continued around 7 per cent. Exchange rate of USD/BDT also witnessed a similar trend. It stayed around 77.7 level throughout the year. Bangladesh Bank actively fostered a stable and efficient financial system as part of its commitment to promoting the country’s economic growth and sustainable development.
During the year we continued our efforts to further improve the deposit mix targeting a good reduction in the cost of funds. Our long-term endeavor to reach to the larger number of clients by providing easy access to technology driven services to the masses continued as well. The year also saw our networks expanding in a rapid pace with the introduction of different innovative modes of delivery channels. We ended the year with 112 online branches, of which 6 were newly added during the year; 250 ATMs that included 5 walk-up ATMs and 5 drive through ATMs – the country’s first ATMs of such kind; a robust internet banking platform named Citytouch, which swiftly grew in popularity beating all our expectations; 20 cash deposit machines (CDMs); a fast growing priority banking and wealth management platform called Citygem, which received an additional center during the year; 2 separate state-of-the-art Call Centers for cards and retail / SME clientele; and an improved version of City Wallet – the basic mobile banking solution for urban customers. Additionally we rolled out 3 new branches of our foreign subsidiary CBL Money Transfer Sdn. Bhd., Malaysia, as the business is growing at a high rate and – needless to say – supporting the country’s much needed supply of greenback. From that subsidiary of ours, we remitted BDT 1,330 million only to Bangladesh and an additional 78 million Malaysian Ringgit to countries like Nepal, Indonesia and Philippines.
It was not only in the expansion of our network both in physical and in digital sense where we took such bold measures. We also worked hard to change the deposit mix and to maintain a comfortable liquidity position. The deposits grew by BDT 11.3 billion in 2014 – from BDT 107.1 billion to BDT 118.4 billion. That testifies to the fact that under a highly competitive market condition, which further intensified with the opening of 9 new banks, we were able to achieve some modest growth in deposit mobilization. We succeeded not only in collecting such deposits but also in containing the market heat of higher interest rates by reaching favorable deposit mix as evidenced in our relatively low cost of funds. Our aggregate cost of funds was 6.3% at the end of 2014, which dropped from 7.0% of the previous year. Besides deposit, the loans and advances stood at BDT 116.62 billion at the end of the year from BDT 89.88 billion at the beginning, thus posting a growth of 29.8%. Moreover, we continued to diversify our lending portfolio without compromising the speed of growth. Our portfolios were successfully distributed across different sectors in order to reduce client specific and industry specific concentration and overall portfolio risk.
However, the rate of return on loans and advances reduced to 13.1% in 2014 from 15.1% of 2013. As you may remember, the market was excessively liquid by the end of 2013 and lending rates went through considerable reduction across the industry, such that the simultaneous reduction of deposit rates eventually could not avoid the ‘neutralized’ impact on net interest income. However, significant improvement was achieved on classified loan as a percentage of total loans, which reduced to 5.9% as of 31 December 2014 from 8.1% as of 31 December 2013. While our Operating Profit increased by 23.87%, the Profit after Tax increased by 143% from BDT 911.2 million to BDT 2,215 million. A major driving force of increasing profitability was the reduction of provision for loans, investments and other assets, which was BDT 1,540 million in 2014 compared to BDT 2,340 million the previous year.
In maintaining adequate capital against overall risk exposure of the bank, our guiding philosophy has been to strengthen risk management and internal control practices. Bank’s regulatory capital as on 31 December 2014 stood at BDT 23.4 billion, out of which more than 7 billion was generated in 2014. As a result, Capital Adequacy Ratio – under Basel II –was recorded at 15.4% against regulatory requirement of 10.0%. It happened mainly due to the injection of BDT 3 billion worth of Subordinated Bond for strengthening our Tier–II capital, and also due to profit made during 2014 and the revaluation of the real estate properties we own. This enhancement of capital has already enabled us with enormous opportunities for business growth in the coming years.
In 2014, our bank conducted environmental risk rating for 156 projects it financed, which was worth BDT 20 billion, out of which 144 projects were rated as ‘low risk’ as per Bangladesh Bank ENVRR Rating Scale. Additionally we have approved ‘green financing’ for BDT 3,100 million in the year. We support green initiatives wholeheartedly and as part of this initiative we installed solar panels in 5 branches and 11 ATMs in 2014. Global Climate Partnership Fund (GCPF) also approved US$ 30 million credit line for such initiatives. This of course has strengthened our hand further in our endeavor to becoming a ‘Go Green’ institution.
2014 has been a good year in terms of our CSR activities too. This year, we focused on diverse areas of social development ranging from community health to disaster management, sports, education, and support for underprivileged women and children. Sponsoring the national program “LakhoKonthe Sonar Bangla”, supporting SEID Trust for the underprivileged children with disabilities, supporting the Development Studies Dept. of Dhaka University, standing beside the Institute of Bankers Bangladesh, establishing computer labs to support ICT education, standing by the nation during disasters like flood, distribution of seeds to flood affected farmers, distribution of winter clothes to a vast population who were suffering from the chill of winter – these were just a few of the very modest steps we took to support and develop the community we reside in.
We all know that in 2014 our brand was recognized internationally by many reputed institutions. At the heels of the progress and development we kept on making, the awards and accolades kept on coming our way in rapid succession. We received major awards like 'Best Bank in Bangladesh - 2014’ from Euromoney; 'Best Consumer Internet Bank in Bangladesh - 2014' from Global Finance; 'Best Commercial Bank in Bangladesh - 2014' from FinanceAsia (for the second time); ‘Best Online Banking Initiative of the year-2014’ from Asian Banking & Finance and so on.
All these international awards echoed what the home market has long been voicing, i.e.,City Bank has crossed the threshold of being ‘local’ to ‘international’ in terms of its adopting the global best practices in banking.
We have commenced the journey into 2015 with much gusto and with a brave blueprint in hand. Currently we are working on launching, just to name a few, the following: full-fledged Agent Banking services, Co-branded credit and prepaid cards, EMV / chip switchover, remittance companies in other countries, corporate module of Citytouch Internet Banking, the next version of the core banking system, Citygem Priority Banking in terms of product-build for the super high-net-worth segment, Preferred Banking for the mid-wealth segment at the branches and so on.
I always believe in attracting, developing and motivating the very best individuals and encouraging our in-house talent pools. In result, staff turnover rate improved from 11% to 8% from 2013 to 2014. Building a robust and productive workforce is crucial to our highly technology oriented work environment. We always keep that in mind and we, therefore, continuously run training programs for the ones who need catching up. In the year in question, 3,143 staff members including contractual staff have been trained as per the approved training calendar. Recently we started recruiting Management Trainees every year. The future leaders of this bank are very likely to come out from that pool. I believe this regular recruitment of Management Trainees will ensure continuity of the leadership over the years.
Now I will talk a little bit about our broader operational philosophy. We will focus on building the right client base: those institutions and consumers who best fit our business model and for whom we can create the most value. We will further streamline and rationalize our systems and processes by striking the right balance between efficiency-boosting standardization and the flexibility and empowerment necessary for our people to best serve our clients. And we will also look to save time and money by consolidating our operations and by minimizing costly fragmentations. Much of the resources we save will be reinvested in our businesses where the greatest returns can be generated and, in particular, will be dedicated toward improving our technology and digital presence. For example, we have recently launched web based E-token system for customers who want to visit our branches so that they can book their appointments and time slots well in advance. I personally believe that the financial impact of a fraudulent activity can be calculated but the harm to our credibility will be harder to gauge. Credibility is the currency that allows us to meet our goals. That is true of our clients, the core constituency we aim to serve every day; that is true of our regulators, who grant us our license to do business; that is true of our employees, whom we need to attract by making City Bank the best place to work; and that is true of our shareholders, whose trust we require to succeed and which we will continue to strive to earn.
Finally, on this auspicious occasion of publishing our Annual Report, I take the opportunity to thank our valued clients, patrons, well-wishers and honorable shareholders for their active support, cooperation and strong association with us over the years. I also gratefully acknowledge the extraordinary support of our Chairman Mr. Rubel Aziz who not only made it possible for us to succeed but also, many a times, led the way himself after making us dream big. The cooperation and support from the esteemed Board of Directors cannot go unacknowledged either. Ours is a Board of some talented and committed business people who value good governance, transparency and long-term institution building over short-term profit making at all times. My gratitude to the Chairman and the Board of Directors for everything they are doing in order to ensure a sustainable future for this 33-year-old franchise.
City Bank is undoubtedly one of the most respected and top banking brands in the country today. It is a matter of pride for me to be able to sit at the helm of affairs of such an institution. I will surely do my best to repay your trust and confidence.