Good evening and assalamualaikum from Dhaka, Bangladesh. This is Selim Hussain . I'm the Managing Director of BRAC Bank, and I am happy to welcome you to the half-yearly results declaration from Dhaka, Bangladesh, from BRAC Bank. I have with me a number of our senior management colleagues, and over the next one hour, we'll give you an update on what has happened over the last six months and the results as at the half year ending. Dear viewers, this is a live webcast in our earnings disclosure portal. This link has been shared with all relevant shareholders through press, websites and Facebook posts. We are also live with this presentation on our Facebook page. Shall we begin, Deb?
Yes, sir. I'm showing the presentation. Can you please make the presentation shareable? Post, please.
Thank you. Next slide, please. Next slide, please. The usual disclaimers. Next slide, please. So this is going to be roughly 1 hour. We'll start off with the usual market and economic update, and then have quick updates from the different businesses, including treasury and our risk management, and then we can get into the actual financial performance from our CFO. We'll have a bKash update right at the end and finish with a short question and answer. As usual, you're welcome to send all questions that you may have directly to Mr. Deboprasad Chowdhury . Shall we start now, Deb? Next slide. I would request our Treasurer, Shaheen Iqbal, Deputy Managing Director and Head of Treasury and Financial Institutions, to take over now. Over to you, Shaheen.
Thank you, Selim. Good evening, everyone. I think the Bangladesh economy grow moderately despite various challenges during the first half of 2023. Inflation remains elevated and reserve depleted, even though it is now showing stabilization. I think various initiatives from the central bank and the government is helping the economy to stabilize it at a moderate pace. Like interest rate is already moving up, currency continues to depreciate, and, and, and recently we have seen some negative rating action as well. Altogether, we have seen the economy still growing pretty well, and, and economy is going to stabilize and move to a new stabilized growth path. I think if we can move to the next slide, Deb.
We can see that various agencies shown that economy is expected to grow around 5.5%-6.5%, even though government projection is even higher. I think considering global environment, this is a pretty good growth projection. At the same time, we, we can, you can see, like, our export performance is pretty good considering the global environment, like export grew, import has come down, our trade balance has improved significantly, remittance growing, and the current account balance, where we have shown significant improvement, like from $18.7 billion last year to $3.3 billion only. This has really helped to stabilize the currency and also lower our BOP deficit, even though this year BOP deficit was higher than the last year. I think for...
In general, we are seeing things are stabilizing, and I think we'll be having better year going forward. Thank you. I think that's a small performance assessment.
Thanks, Shaheen. The key takeaways is essentially that the country is now coming out of the very difficult situation it found itself in, roughly a year ago. The foreign currency situation is gradually stabilizing, and in fact, outstandings due to overseas correspondent banks, for example, are much, much lower than they were even six months ago. Very few banks have any delinquencies in that area. Before we get into the specific business updates, I'd like to share a few takeaways from, and key messages for the whole business over the last six months. Starting off with the fact that BRAC Bank has grown very strongly in terms of funds under management. Both customer lending and customer deposits have grown significantly, faster, higher than industry averages.
Importantly, customer deposits have grown across all customer segments and sub-segments, including SME, as you will learn a little later. Customer numbers, roughly 10% growth in the last six months, approximately 143,000 new customers. Portfolio has improved. Customer loans or customer assets have improved significantly as well. Thirty-day past due is 4.7. That compares favorably with the end of last year and is pretty close to what the conditions were pre-pandemic as well. Very importantly, BRAC Bank has exhibited very strong liquidity position in both local currency and foreign currency, and we'll expand on those numbers as well a little later. Most important of all, in just this six-month period, BRAC Bank's low market share in lending has grown by 29 bps.
in deposits by 18 basis points. I think that's a very significant metric that shows how the bank has done. Let's move to the next slide, which is essentially an update from the SME Banking division, and we'll ask Syed Abdul Momen Tamal, Deputy Managing Director and Head of SME, to expand on his business over the last 6 months.
Thank you, Selim Bhai , and good evening, everyone. First half of this year was particularly an amazing one for the SME business. If you look at the numbers, like we had a 20% growth, we have in the customer numbers year-on-year and a 10% growth in, during the first half. The portfolio has grown by 23% year-on-year and 14% during the first half. This is the first time when historically, SME has been a asset engine. This is the first time, because we have in previous sessions, we have explained that we have been developing a deposit engine, and we have a team focused on the SME deposit growth.
This has started producing results, because this is the first time where both assets and deposits have grown at the same pace during H1, at both at 15%, and annualized it will be like 20%, 28% or 30%. All the branches, the new distribution networks, the sub-branches, the sales teams, the agent banking network, the distribution channels, everyone have now focused on building the SME deposits with a central management unit as well. Due to this growth in deposits, there is a slight deterioration in the CASA mix, because now we are actually generating real customer deposits. So there are more TDs, more DPS, and such deposits coming in. So the cost of deposit has increased a bit, but even then, the deposit base has significantly grown.
We have disbursed like BDT 14,000 crore SME loans during H1 alone, and which we used to do during the whole year previously. In terms of the yield, you, you've been seeing a slight increase because we are a largest bank to get on the refinancing schemes. Almost 5% of our book is refinancing by various schemes from Bangladesh Bank. There is a significant improvement in especially small business portfolio. If you look at the 30-day PAR, during H1, there is an improvement. It has come down to 3.28% from 3.92%. NPL has seen significant improvement as well, from 3.12% to 2.73%. The trade volume has also grown by 8%.
We are also exploring various other new diversified products for various customer segments, which includes digital loans as well for the SMEs. Bangladesh Bank has given us the go-ahead on that. With a strong growth in both assets and deposits, we foresee that the H2 will be even better. Our digitization process has already started, and by end of this year, we will be leveraging benefits of that, too, which will significantly improve the efficiency of this business. We will be able to deliver it more with a very low Cost-income ratio. That's all from SME business. Over to you, Selim Bhai. Thank you.
Thanks, Tamal. Let's move into the retail banking division. Unfortunately, our Head of Retail Banking is on leave, so I'll do the best I can to replace Mahiul Islam. Can we look at the slide, Deb?
Thank you. Good growth in customer numbers, 20% growth over the last 6 months. Deposit portfolio has grown well, at 20%, a drop in the CASA mix and an uptick in the cost of deposits, mainly arising out of term deposits. Portfolio growth in assets is slightly muted at 8%, but has also been impacted by becoming more conservative in terms of risk appetite, which is also a function of the inflationary pressures and the reduction in disposable income for many client segments.
30-day PAR has risen slightly, 20 basis points over the last year. Overall, a positive performance, particularly when you look at a credit card portfolio having grown at 27% and merchant acquiring also growing very, very well, and very importantly, inward foreign currency remittances have almost doubled year-over-year. A good growth momentum in customer acquisition in cards. Disbursement, customer lending has picked up in the second quarter. We expect that to continue over the third and fourth quarters, so the year-ending portfolio growth is expected to be significantly north of the 8% during the first half. Thanks, Deb. Let's move to corporate banking now.
Thank you.
Tareq Refat Ullah, Deputy Managing Director and Head of Corporate Banking.
Thank you, Selim Bhai. Good evening, ladies and gentlemen. As-salamu alaykum. Corporate banking division has been demonstrating outstanding results during the last couple of years, and first half of 2023 is no exception. You can see the all positive indicators, almost all parameters or KPIs. This sustainable growth is happening due to our growing list of capabilities, particularly in equipped resources, capable digital solutions, enabling platform, which helped us onboarding industry-leading accounts and continue as their preferred corporate banking partner. Our Transaction banking capabilities actually has some competitive advantages that have propelled our deposit growth. This includes continuous liquidity support in foreign currency and local currency, which enabled us to attract leading corporate clients and onboard many multinational clients during this year period as well.
Our equipped resources and supportive environment not only helped us to onboard these large relationships, but also cater their growing needs and sustain business by our robust digital banking also, which is called CORPnet, that helped us to cater low-cost deposit and helped us to improve CASA-TD mix further. In terms of advance and loans and advance side, our growth in loans and advance is aligned with our risk appetite. Each year, we are still onboarding new limits over BDT 5,000 to around BDT 10,000 each year, consisting of industry-leading accounts and of course, in line with our risk appetite as well. The whole enterprise, including our risk underwriting, credit administration department, and operation functions, is actually upscaled to sustain their growth volume.
We are continuously expanding our footprint in newer avenues, during this first half of 2023, we have onboarded a large number of multinational clients to meet their financing and Transaction banking requirements. Our strong onboarding process and robust portfolio monitoring system have helped us maintaining outstanding portfolio quality. With our de-risking initiatives, we are hopeful to further reduce non-performing loans from legacy portfolio, we are hoping that it will be known, fully replenished within the next one or two years. Our objective is to double our portfolio in four years in terms of loans, deposit, and trade. Last year, we were fully in line with our objective, during the first six months of 2023, we are growing in the right trajectory. Our intent to continue this sustainable growth and remain as the most preferred corporate partner in the industry.
Thank you so much.
Thanks, Tareq. Let's move to Treasury and Financial Institutions and listen to our Treasurer, Shaheen Iqbal, also Deputy Managing Director.
Thank you, Selim Bhai. I think bank really managed both local currency and foreign currency liquidity pretty well during this period. I think this is demonstrated by our ability to support our clients. During this period particularly, we have been very liquid. You can see the graph on the right side, like, we remain very liquid in the local currency. At the same time, we have been very strong in foreign currency. That's why we supported a lot of clients in supporting their trade requirement and also in channeling remittances as well. Altogether, our throughput in foreign currency business has increased significantly. You can see, like, 16% growth in trade in industry versus 21% growth in our portfolio. That's the differential that we are creating and achieving more market share.
So this was all supported by our offshore banking portfolio as well, like, our offshore banking has grown by 24% on annualized basis in the first half of 2023. This was well supported by various facilities. $100 million facility from JICA, is the first any facility to any bank in Bangladesh by JICA. $50 million facility from IFC and various other facilities as well. Altogether, we have been very strong in both foreign currency and local currency. This was also recognized by various rating agencies as well. I, I'll, I'll explain it in the next slide on the, on the fly. In general, on other front, like FX liquidity and the FX and the government securities management, we are leading bank as usual.
Altogether, this was very successful first half for treasury and BRAC Bank in terms of liquidity and overall business management. Next slide, please. As I mentioned, like, we are the only bank rated equivalent sovereign by Moody's. We are the only bank rated by S&P. S&P, again, recently, they have downgraded or they have put a negative watch on the country and the industry, but they kept stable rating for BRAC Bank. This is clearly a testament of BRAC Bank's strength and recognition from the international rating agencies that how strong BRAC Bank is in terms of its overall management. Also, like, we are a triple-rated bank by local rating agencies, and we are one of the most sustainable bank by Bangladesh Bank as well.
Altogether, BRAC Bank is a very sustainable and highly rated bank, and it is being shown by all the stakeholders that the bank has as well. Thank you.
Thanks, Shaheen. Now let's listen to our Head of Credit Risk Management, Ahmed Rashid Joy. Joy, over to you, please.
Thank you, Selim Bhai. Good evening, everyone. You can see that we continue to present our PAR and NPL ratio on six-year horizon, starting from 2017. You can see how consistent the lines are with regards to PAR, 30 days PAR and the NPL. In Q2, 2023, our NPL ratio was 3.5, which declined than the previous quarter, and also our 30 DPD PAR declined to 4.7%. Now, 30 DPD PAR is a more conservative approach. You can understand on the sense of the portfolio quality based on the, on this ratio. Many of you may be more interested on the 90 DPD PAR, and on that basis, our ratio is 3.9%. I mean, that's less than 4%.
Why we do this is that we want to present to our audience that the consistency that our asset portfolio has over the period, even before the pandemic and the post-pandemic level. Even, I mean, in this period, so much has happened, like in 2023, we have seen the once in a lifetime COVID events and then the global uncertainties, the commodity prices, volatility, and recently, the pressure on our balance of payment. Even after all these things and uncertainties, we are still maintaining the quality of our portfolio at this level. That was the key point. Next slide. This is the NPL coverage and the cost of credit.
We are also presenting this from 2017, except 2020, when we were the only bank in Bangladesh who maintained so much of, you know, loan loss provisions, technically, when we were required, not required to keep any provisions by the central bank. We did this proactively, keeping the uncertainties of COVID in mind. In Q2, our NPL coverage ratio was 115%. That's the strategic level. We'll try to maintain 110% plus, for that matter, we had to keep loan loss provisions that resulted in cost of credit of 0.69%. Next slide. Many of you wanted to know that the amount of rescheduling that we have done in our portfolio or the COVID restructuring, we are presenting this.
You can see that 97.6% of our portfolio are under the regular payment terms. Under the conventional rescheduling things, we have only 0.8%, and on the COVID restructuring, our portfolio is 1.6%. Only these two are, which is less than 2.5%, are under the rescheduling or restructuring. In Bangladesh, as you know, that many of the portfolios or accounts are under stay order, that's in the litigation process. In our portfolio, we do not have any such accounts. As we are growing, you know, impressively, we continue to focus on our risk management, which we have enhanced in every, every possible way. Our risk appetite statement is very strong, and we are working on that on almost quarterly basis.
We are reviewing the risk management framework, just to face all these, you know, growing portfolio and the uncertainties, we are working on different industries. We are analyzing them based on the macroeconomic volatility, and realigning our strategy. After that, we are continuously upgrading our risk models and developing few others as early warning indicators. More importantly, we are very much focusing on the data, portfolio data, so that we have the 360 views on the asset portfolio, based on which we can derive policies. These are the steps we are working on relentlessly in this period of high growth. Lastly, I would like to thank collection and the special asset team, who are working very hard in maintaining our portfolio quality. That's all, Selim Bhai, from me. Thank you.
Thanks, Joy. A good sense of how, despite the fact that the customer assets are growing strongly, we have still maintained the portfolio quality. In fact, in certainly in retail, we have become more conservative in a number of areas. Over the next few slides, I'll take you through some graphs which will give you a sense of how our balance sheet has grown, and then we'll move into the actual numbers with our CFO. Deb, can I look at the next slide, please? This gives you a sense, over the last few half years, 2020, 2021, 2022 and 2023. This year, for example, customer deposits have grown 26%. SME 23%, retail 20%, and corporate a whopping 38%. Next slide.
If you look at the deposits mix, actually, corporate banking has grown to 33% of total deposit mix, and retail has just dropped to below 50 for the first time in a long time at 49%. Next slide. Next slide is the CASA-TD mix. That is, has dropped from 21, but at 51% is still quite good. We expect to end the year a little higher. Next slide. Customer lending, again, 26% for the enterprise, SME growing strongly at 27%, corporate very strongly at 37%. As you heard from Tareq Refat Ullah , the growth in corporate is very aligned to our risk appetite, mainly in large corporates, well-known, corporates, who are at the upper echelon of every sector.
Retail, slightly muted at 8%, expected to improve significantly over the next two quarters. Next slide. The loans mix is pretty similar to what it was earlier. This green piece here, SME, showing 46%, is the central bank's classification. Within the bank ourselves, there's another 4% or 5% that is managed by SME, but is in BRAC Bank, but is defined as corporate commercial by the central bank. Roughly 46% of our loan book is SME, 17% is retail, and 37% is corporate. Again, a wider dispersion than at any other bank in Bangladesh. This is a slide which really compares our spread over the last 2 or 3 years compared to the average for the banking sector. You'll see that we are well ahead at 3.9%.
We are also within the central bank restriction or prescription of 4%. This is entirely due to the fact that our cost of fund is amongst the lowest in the industry. At the same time, almost 70% of our customer lending is targeted at the SME and retail client segments, where the pricing is a little higher than corporate and commercial. Therefore, the net 3.90 spread is much better than most of our competitors. Next slide. I'll hand over to Masud Rana, our Chief Financial Officer and Deputy Managing Director. Masud, let's get into the actual numbers.
Thank you, Selim Bhai. assalamualaikum, and good evening to all. As you have, can hear from our, you know, business heads and also from our CEO, the first half has been pretty well. I mean, very, very good in terms of the intent or the objective we had. To start with, I think this good sets of result is not actually an individual business or individual departments. Actually, the bank as a whole, all the unit played more or less equal role in delivering these results. Starting from our front end to our operations, a person who is keying in the, on the numbers.
Put together, if we look at our customer deposit, as you can see and, you know, if heard, all the segments actually grown their pie. In terms of our delivering this growth, our channels also played a very key role. Our branches has contribute... Let's say we have grown our deposits about BDT 5,000 crore. Of that, 70% has come from our branches, while we have some direct sales teams. On the other hand, on the loan, yes, we have a diversified portfolio, and all the businesses, except for the retail, which was intentional and kind of deliberate slowness in the growth. We started growing our business in the Q1 Q2 only. We are expecting to, you know, catch up in the second half of the year.
Loan also, on an annualized basis, grown about 29%. Our revenue year-over-year have grown about 21%. I'll, I'll, I'll take to another slide where I can, you know, detail the total revenue slide. If you look at this, this is year-over-year, our revenue, and also, you know, divided into funded income and non-funded income. Our net interest income has grown about 16%. Thanks to the growth that we are pursuing, that has helped us growing our book interest earning. Like, if you look at the waterfall in the lower half of the slide, it has significantly contributed with that growth. We have also, you know, pushed our yield, in a sense, from the, this, particularly from the Q3 last year.
Mind you, we have not, you know, repriced any existing book. It has always been on an, you know, new sanction basis. While in, if you look at the deposit, the sale, due to the market condition, environment, it has gone significantly up. Our gross interest has grown by about 40%, while cost of deposit has gone up by 70%. The good story is our NFI is getting bigger and stabilized. As we are growing our balance sheet, most of our fees and commissions are coming from this growth, which is pretty healthy. Like, I mean, I'll come to investment. Commission brokerage has grown by 31%. Last year was an unusual year, but even that, this year's FX gaining also very close to that.
If you look at our trade business has grown significantly. It has, it was around BDT 2 billion, plus slightly over BDT 2 billion, which has also helped, you know, this particular commission and brokerage line. Net-net, year-on-year, our total revenue has grown by 21%. If we can go back to that slide again. I think overall balance sheet view, like 27%. Our regulatory capital grown by 4%. Of course, it is after the cash dividend that we have paid out. The profit after tax is 19% year-over-year. Last year, it was 254%. On a solo basis, I think, that's a significant growth given the, you know, investment that we have put in.
Over there, and with that buffer, you know, LI or loan impairment charges, we are, we are, you know, delivering a very strong set of results. Coming to the return on equity, our equity base in terms of volume is quite sizable. It's almost second largest or third largest in the market. While we have, you know, yet to be there in terms of our balance sheet size, and therefore, you know, for that reason, the, you know, ROE is being bit, you know, slow, but we're, I, I, I can see that this is growing.
As you can see from the year end, it has grown by a couple of bits, but by year end, I'm, you know, quite confident that it will, you know, grow to a certain extent. On the other hand, return on asset has gone down because we have actually grown at a very rapid pace, and as you can understand, immediately, because of the general provision and all, we do not get the return immediately. It takes about 6-9 months to reflect the earning of that growth. Hopefully, by next 6-9 months, this should grow and get to 1+ to 1.2% range. Our, of course, our EPS, EPS has grown, which is 19%. We have been maintaining 15% NPL coverage.
On an, you know, theoretical basis, if you look at what was our requirement, it was much below. As we have, you know, promised to our stakeholders, we have maintaining a significant buffer and continue to build up, as, as you know, our head of corporate was mentioning, there are some legacy, you know, clients for whom, for which we are building that, and hopefully in a year or two, we'll get out of that, you know, legacy strongly. For the first time, after about 6-7 quarters, our, you know, growth of revenue and growth of, you know, expenses or OpEx as far as, you know, positive job. Our and most interestingly, our cost to income ratio has gone to, again, 57.8%.
I believe this, this is, this is a start. I'm, I'm pretty confident that by the year end, it should improve further. I think NIB has grown accordingly, and our spread, the earlier one that, Selim Bhai showed, is a regulatory spread. While this is, you know, our management spread or, taking together our foreign currency OBUs and also, you know, predicted business. Altogether, our spread, as in, in, in terms of management, was 4.1%, which is more or less similar to what we had in the last, but it is getting stabilized. I think the only metric that, what, seems to be, you know, out of order is our capital adequacy ratio.
While we do have a sufficient capital adequacy, since we are, you know, expanding quite rapidly and quite fast, it has, you know, put that challenge. I, I think our stakeholder know we have already, you know, applied for a tier two bond, which is about BDT 7 billion. Hopefully, that will get into our balance sheet by in next 3, 4 months, and then it will also help out. There are certain actions that we have also put into action that will also get some results, which will help us to, you know, improve the capital adequacy by the year-end. If you go to the next slide, this is consolidated. Overall, more or less similar trajectory, if we look at as a group.
Our deposit grew 36, loan 30%, total revenue even higher, 26%, thanks to bKash. PAT is even higher, 75%, since bKash get into your profitability from Q3. We will get to hear from the bKash CFO. Overall, group's balance sheet size crossed BDT 75,000 crore. Regulatory capital is about 3%. Nothing to highlight here. I think I would like to show the share of our subsidiaries in the next slide, couple of slide later. Yes. If you look at, we have got four sizable subsidiaries. Investment is actually realizing some losses from its, you know, stocks, equity holding.
Therefore, that, you know, loss you are seeing, but hopefully in the second half, while, while we all know, the situation in the capital market, depending on the situation, I think, it's better than any, any, you know, merchant bank in the country. It's looking quite well, and we are realizing that, you know, those losses. Brokerage is marginally up. Sajaan, it's actually reviving its business. Hopefully in a, you know, in next two, three quarters, we'll get to see some good, you know, positive numbers.
On the bKash side, Moin brother will detail it, but thanks to bKash, you know, positive number, on our solo $303, plus with $32 growth from our subsidiaries, year-on-year, you can see a big jump from $190 to $334, PAT as a whole. I think I'll end here. I'll ask Moin brother to take us through bKash. Moin brother?
Yeah. Good evening, everyone. Thank you, Masud brother. I will just quickly take you through an overview of how we've performed in the first half of 2023. Beginning with customers, we ended June 2023 with almost 70 million customers. To be precise, it was 69.9. If to give you a benchmark, we were at 65.3 at the end of 2022, so over the past six months, we've added 4.6 million customers. In terms of active customers, we had 40.3, and at the end of December, we were 36.1. That's an increment of 4.2 million customers.
Of the 4.6 million additional customers that we've had, 4.2 were active, which is, which is a very respectable number. In terms of market share, we were at 62.1. Year-over-year, we are at a, at a very stable market share of 62%. In terms of merchants, 295,000 merchants. We added about 9,000 merchants over the past six months. Volumes, 709 million volume monthly average transaction. Six months ago, this was 600 million, so which means volumes increased by 18% over the past six months. Number of agents remain consistent at about 317,000 across the country.
Recording stopped.
Moving on to the P&L. First half of the year, we were at, we did BDT 2.3 billion or BDT 2,315 crores, which was up by 23%. There are two components of gross revenue. One is the revenue from operations, and one is the interest earnings from customer float. Revenues from operations basically increased by 20%, which is similar to the volume growth. Volumes from the interest component increased by 52% effectively at the because of a higher effective interest rates. Combining, we had a volume growth of 23%. Just to let you know that of the total volume by 75% is still from cash out. Cost of services increased by 18%.
Gross revenue increased by 23, cost of services increased by 8. 18 effectively. Our gross margin in the first half of 2023 was 29%, and it was 25% same time last year. The reason why gross margin has increased is because we are consistently rationalizing our channel commissions that we pay to our different channel partners. That has significantly resulted in bKash making profits in 2023. Actually, that has resulted in bKash increasing its gross margin more than profits. In terms of operating and administrative expenses, primarily, the increase is being driven by 3 factors. One is, our human resource costs went up.
Between these two periods, we had an additional 119 million new employees, 119 employees, new employees that joined the company, and that's why this increase. The other reason is, is depreciation because of investments in technology. These two are the reasons why this has gone up. Commercial expenses has gone up by INR 23 crore or 16%, primarily being due to the promotion expenses. Please bear in mind that in the first half of 2023, we had 2 Eids, which is the biggest festive seasons. So that's the reason why commercial expenses went up by, by 23%, by INR 23 crore or 16%. As a result of which, our operating losses declined from INR 88 crore to INR 23 crore in half one of 2023.
As I mentioned before, the primary driver of this decrease is because, because of the higher gross margins that's coming in now. In terms of net finance income, this is the interest earnings that we have generated from our, from our own capital. That's a significant increase of 40%, from BDT 59 crore to BDT 83 crore. This is as a result. The primary driver of this increase is our effective interest rates for the first half of 2023 was 8.12%. Which the same number last year was about 6.3%. That's really the reason why our net finance income has gone up.
As a result, our, our profit before tax was positive BDT 57 crores, and after income tax it was BDT 38 crores, which compared to same time last year, was negative BDT 42 crores. That was in a, in a nutshell, the, the performance for bKash for the first half of 2023. Thank you.
Thank you, Moin. Ladies and gentlemen, you've heard from different business heads, our risk head, and the bKash CFO about how the first half has panned out. Overall, we feel very, very satisfied. This has been a good performance, strong balance sheet growth. Importantly, market share has grown by a significant amount in the first six months itself. Our strategies have also worked out well, and the overall growth strategy is still sustaining despite significant external challenges. Going forward, the expectation is over the next six months, that the banking sector will still continue to suffer from stresses in terms of LCY and of course, FCY. We remain confident that BRAC Bank can navigate those challenges and still generate good performance.
The overall geopolitical and economic outlook externally is still rather uncertain, and that is always a challenge. You know that also in, within Bangladesh, general elections are going to be held at the start of 2024, so that may present some challenges in terms of potential instability. Looking back at the last 2 elections, we don't feel that there will be any real instability or any political uprising of sorts, so we're quite confident about that. 1 big challenge is the rise in interest rates and the continuous inflationary pressure, particularly on disposable income of retail clients, individual clients.
A lot of the corporates and commercials and SME clients we see are able to pass on these increases in cost of production or trading, so the end consumer is finding it quite difficult to pay his or her bills. As a result, we've slowed down customer lending in the retail book slightly. Although the second quarter of the first half of 2023 was quite good, so we'll have to see how the next two quarters pan out. The expectation is that they will be better than the overall 8% growth in retail lending we experienced as at June 30th. Overall, we're still very positive. It's been a strong first half, and we are confident that the second half will be no different.
I'll stop now, we'll ask Deb to tell us about whether we've received any questions. Deb?
Thank you, sir. yes, we have received some questions, and as the digital banking topic is now interesting, item in the banking industry, majority of the questions are coming to the digital bank. let's just start with the digital bank, and I think, sir, along with Moin, they can participate or give first answers. The first question is that, BRAC Bank is investing in digital bank. Now, what will be the BRAC Bank's shareholding in it?
Yes, let me answer that. BRAC Bank, along with the other existing shareholders of bKash, will be applying for a license, in the next couple of weeks. What the shareholding will be, is something that I am not able to divulge at this point in time. You'll have to wait for another couple of weeks before that is finalized and the actual, submission is made. I cannot answer that question right now.
Okay. The next question is that, if the bank is in the operation, the digital bank, then whether it will, that will be a substitute of BRAC Bank or of the bKash?
No, it will not be a subsidiary of BRAC Bank or of bKash. It will be a completely separate legal entity.
Okay. In that case, will the MFS will be existing in the coming days?
Yes, the MFS will be a separate legal entity, and the digital bank, if approved, will also be a separate legal entity.
Okay. Thank you, sir. Next, we have a very interesting question on digital banking guideline. You just mentioned that Digital banks can use MFS agents, but are not allowed to use their own agents. Now, bKash is the largest MFS in the Bangladesh. It is the likely most Digital bank will utilize bKash agents. That's true. Provided bKash Digital bank is approved, how will you manage conflicts of interest in such circumstances?
Essentially, what that means is that these digital banks, since they will be neo banks and will not have physical infrastructure themselves, aside from perhaps a head office, they will have to operate through partners. Partners could be traditional banks, partners could be mobile financial services, partners could be other e-wallet service providers as well. We'll have to address that challenge as it comes, but the expectation is that the digital bank will not operate in a vacuum. It will need partners to operate. I think that's quite normal and natural and will serve everybody's interests. I do not believe there will be a conflict of interest between the digital bank and the mobile financial service, certainly for many years yet.
Bangladesh is large enough today, the Bangladesh economy, the customer segments, size, volume of transactions, the needs, requirements of customers is quite disparate as well. Most of us are confident that the digital bank, the mobile financial service, and the traditional banking can all work individually and together to offer good banking and overall financial service to a larger, a broader range of customers than is the case today.
Thank you, sir. The next question is that BRAC Bank is already going through a expansion plan as outlined in the midterm strategy. Now, how are you planning on managing the increase in CIR? That we have seen that CIR is still higher than 50%.
Yes, that is one, perhaps one of the few metrics that is, is relatively soft, and it is one that you know that we intend to attack through our digital transformation initiatives. Improving productivity, efficiency, effectiveness, new products and services, new customer segments, much greater volumes all together, I think. Sorry, a streamlining or a re-engineering of processes as well. All these different efforts are working individually and perhaps collectively over the next couple of years, should bring that cost-income ratio down. You will have noticed that, that it's already starting to creep down over the first six months of the year.
Thank you, sir. The next question is on our treasury investment book. I think Shaheen can help us on that. Can you please give the breakdown of treasury investment and how much held by the bank and how much are by the subsidiary individually?
I, I think, we have given the breakdown in the financials, in general, like, you will see there is a good growth of investment income, mainly because of the increase in yield. Like, as, as bKash CFO has mentioned, like, the finance income and other income has increased because of the yield increase. I think the main change is due to the yield change.
The, the question was there, is the balance sheet or the profitable, you know, the, the revenue number? I think the balance sheet.
Right. It's up to balance sheet.
The BDT 13,000 is our, you know, holding as at thirtieth June, of which BDT 7,000 is banks and BDT 5,000 is coming from the bKash.
Thank you, Masud Sir. The next question is that capital gain made a big portion of investment income in H1 2023, when the treasury yields were rising. Can you elaborate more on this?
Is this question to me?
Yes. Yeah. Should I repeat?
Yeah, please.
The question is, the capital gain made a big portion of investment income in H1 2023, when the treasury yields were rising. Can you elaborate more on this?
Okay. I think, I think, this is because, like, before, the yield really jumped up, we really encased some of the securities. We were expecting yield will go up, so that's from where we realized some of the capital gains.
Thank you, Shaheen. The next question is that, Bangladesh Bank is planning to have loan classification time, recent, directives shared by, Bangladesh Bank. What is your view on this, and what will be the impact on NK if that happens?
Sorry, could you repeat that again?
Sure, sir. The question is that Bangladesh Bank is planning to have loan classification time. What's your view on this? What will be the impact on NK if that happens?
I see. I see. Firstly, we from BRAC Bank and also from the Bankers Association, we feel that it is good that the Bangladesh Bank is aligning itself more and more with international best practice and international regulations and practices with regard to definition, classification, and provisioning of customer assets, is most necessary, we feel. This is a good move on behalf of the central bank, very positive. A very positive start of the reforms with regard to loan provisioning, and we welcome it. The changing of the definition itself will not really increase or decrease unproductive volumes. It, it is just a change in the classification.
We feel that internationally accepted norms in this area are the right way to go, and they will actually help the sector gradually move out of the doldrums that they are, have been in for the last few years.
Thank you, sir. The next question is on CIR again, though we have you have answered the CIR part, but this question is on the consolidated basis, that CIR stood at 68% during Q2. Any chance that this ratio may drop in coming quarters? This consolidated basis.
Yes, we, we certainly expect, the consolidated cost income ratio to also come down as both, as all the different businesses, perform better going forward. I can certainly confirm that for BRAC Bank, the expectation is, is that we will have a strong second half. There are some challenges on the horizon, but we expect to be able to navigate them. The feeling is not too different for bKash, the other larger subsidiary as well.
Thank you, sir. These are all the questions that I have listed, so thank you. Thank you all.
Thank you for your time, ladies and gentlemen. It's been a pleasure. Again, let me confirm that BRAC Bank has had a very good first half, and we are confident that we will be able to continue along the same vein going forward as well. Ladies and gentlemen, good evening from Dhaka, Bangladesh.