MUFG Bank expresses interest in launching a branch in Bangladesh

MUFG Bank, a Japan-based financial institution, has expressed interest in establishing a branch in Bangladesh, while also voicing concerns over the country's non-performing loan (NPL) situation.

MUFG Bank is the principal commercial banking subsidiary of Mitsubishi UFJ Financial Group (MUFG), Japan's largest banking group and one of the world's leading financial institutions. Headquartered in Tokyo, the group was formed through the merger of several major Japanese banks and has since built a significant global presence across banking and financial services.

On Monday, a delegation of the bank held a meeting with the governor and deputy governor of the Bangladesh Bank. The delegation included Yukinobu Saeki, Chief Executive for Asia Pacific (APAC); Osamu Abe, Managing Director & Head of Planning Office for Asia Pacific; Sotaro Ito, Vice President, Planning Office for Asia Pacific; Kenji Kimura, Managing Director & Chief Representative, MUFG Dhaka; and Golam Kibria, Vice President-FI, MUFG Dhaka.

A senior official of the central bank has confirmed the matter to the Business Standard. MUFG, which has operated a Representative Office in Dhaka since 1990, is seeking to establish a branch in Bangladesh. According to the Bangladesh Bank official, MUFG Bank already has branch operations in India, Sri Lanka, Pakistan, and Vietnam.

MUFG Bank wants a corridor banking model based in Bangladesh. Corridor banking is a banking model in which a bank from one country provides specialised financial services to facilitate trade, investment, and the flow of funds between its home country and another specific country or region. In essence, it creates a financial bridge or "corridor" connecting the two economies.

Trade finance expected to improve

If MUFG Bank establishes a branch in Bangladesh, banking services related to corporate lending, trade finance, foreign exchange transactions, and investment activities would become more accessible and efficient for Japanese companies operating in Bangladesh. This, in turn, could help attract greater Japanese investment into the country, the senior official said.

He said foreign investors generally feel more comfortable conducting business through banks they are already familiar with. As a result, Japanese companies may be more inclined to invest in Bangladesh if MUFG expands its presence in the country. In addition, services such as letters of credit (LCs), bank guarantees, and other trade finance facilities for importers and exporters could become faster and more efficient, reducing both transaction costs and processing times in international trade.

The official added that the establishment of an MUFG branch would further enhance Bangladesh's image as an investment destination. It could encourage more Japanese businesses and investors to explore opportunities in the country while making trade finance services more readily available.

Bangladesh and Japan currently conduct approximately $3.5 billion in annual bilateral trade, with Bangladesh exporting around $1.4 billion worth of goods to Japan and importing more than $2 billion. The official expressed hope that trade volumes would increase further as financial services become more streamlined.

The official also noted that the Japan International Cooperation Agency (Jica) conducts a significant portion of its financial transactions through MUFG Bank. If the bank opens a branch in Bangladesh, many of the time-consuming processes and operational complexities involved in transactions with Jica could be reduced. This would help lower transaction costs and improve efficiency by facilitating faster and more convenient financial dealings for all parties involved.

MUFG Bank concerned over high NPLs

It is learnt that MUFG Bank has expressed concerns about the current level of non- performing loans (NPLs) in Bangladesh's commercial banking sector. Given the extent to which the banking system is burdened by bad loans, the bank asked whether this is the right time to establish a branch in the country. The delegation also sought clarification on the authorities' future plans regarding the operation and expansion of foreign banks in Bangladesh.

The governor assured the delegation that NPL figures had long been understated. Through the ongoing Asset Quality Review (AQR), efforts are being made to present a more accurate picture of the banking sector's actual level of non-performing loans. He also noted that foreign banks currently operating in Bangladesh have comparatively low NPL ratios. Therefore, he believes MUFG Bank would be able to conduct its business successfully if it opens a branch in the country, according to a senior official present at the meeting who spoke to TBS.

A senior Bangladesh Bank official said the governor explained the factors behind the rise in NPLs and assured MUFG representatives that the ratio is expected to decline in the coming years. The delegation was also informed about opportunities for foreign investment in the management of distressed assets and problem loans at weaker banks.

He said MUFG Bank had been encouraged to establish a full-fledged branch in Bangladesh and participate in conventional banking services as part of its plans to expand operations in the country. The governor assured the delegation that Bangladesh Bank would provide the necessary policy and regulatory support to facilitate such an initiative.