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Wider banking image: obvious and dire need for liquidity management products

Banking sector sees significant improvement in system’s risk profile, asset quality; CPEC likely to give positive direction

Interview with Mr Irfan Siddiqui — President & CEO, Meezan Bank


Mr Irfan Siddiqui is the founding President and Chief Executive Officer of Meezan Bank. His educational background includes a Foundation Course in Accountancy from Sunderland, UK and he is a Fellow Chartered Accountant from Institute of Chartered Accountants England and Wales. He has served at a number of senior management positions including Chief Executive Officer at Al-Meezan Investment Bank Limited, as a General Manager at Pakistan Kuwait Investment Company, Manager Finance and Operation at Abu Dhabi Investment Company and Senior Business Analyst at Exxon Chemical (Pakistan) Ltd.


Meezan Bank was launched in 1997 as an investment bank with an initial equity of Rs252 million in 1997. For the first five years, Meezan Bank functioned with a workforce of 30 people, then in 2002, the State Bank of Pakistan (SBP) issued Meezan with Pakistan’s first Islamic commercial banking license, and concurrently Meezan Bank took over the operations of Societe Generale (SG) in Pakistan. Converting SG’s four-branch conventional banking operations into a Shariah-compliant one was an achievement and Meezan Bank operated as Pakistan’s only Islamic commercial bank for the next two years. Since then, Meezan Bank has seen an average of 40-50% growth in the size of its branch network every year and today Meezan Bank has a nationwide network of 571 commercial banking branches. In 15 years of operations, Meezan Bank is not only the largest Islamic bank in Pakistan but also is ranked as the 8th largest bank in the country.


IRFAN SIDDIQUI: Pakistan’s banking sector has performed well during last 6 months with a significant improvement in the system’s risk profile as well as asset quality. There has been a slow decline in infection ratios but with lower discount rates, the profitability has reduced, resulting in an overall Return on Assets coming to 2.1% as compared to last year’s 2.5%. The asset base for the sector has also increased which is partially owed to the increase in advances and investments as well as increase in borrowings from the financial institutions. The overall macroeconomic conditions have remained favourable as we are witnessing an increase in industrial activities across the country. The Gross Domestic Product of the country grew by 4.7 percent in the fiscal year 2015-16 and as per the State Bank of Pakistan’s economic growth predictions, this shall further accelerate to five to six percent for the current fiscal year making Pakistan one of the major high growth markets in Asia. With CPEC nearing its implementation stage, foreign direct investment and intra-regional trade are increasing presenting the banks with an extraordinary opportunity to capture these businesses and expand their client base.


IRFAN SIDDIQUI: As Pakistan’s economic climate changes, the constructive and value adding role of the banking sector that shall help further boost economic development, becomes more crucial. For instance, financial inclusion which is already a key national objective of the State Bank of Pakistan, should be considered as one of the most important driving forces for economic growth. The coexistence of financial inclusion and stable economic climate will allow banks to further extend affordable financing to rural areas, thus meeting some important socio-economic goals.

One of the core functions to be played by banks is to find ways to efficiently channel the depositor’s savings for financing the private sector as well as SMEs and encouraging private investments in the country. A strengthened banking industry can also spur economic growth by facilitating the allocation of resources to infrastructure projects and particularly to projects that have a higher marginal product of capital, resultantly increasing the productivity at the national level. Banks also help eliminate risks by spreading the investors’ money across diverse projects, thus improving their investment opportunities and mitigating risks to a certain extent.

Lastly, with innovation and technical advancement, banks can emerge as a major accelerator for boosting trade and financial inclusion, bringing people closer to branchless banking opportunities and greater ease of transactions.

With China-Pakistan Economic Corridor (CPEC), a major and pilot project of the Belt and Road Initiative gaining foothold, Pakistani banks can propel industrial growth by acting as a major channel for routing development funds to the private sector. Not only can banks achieve socio-economic goals this way but they can also encourage new entrepreneurs in the country, increase employment opportunities and most importantly broaden the industrial ownership. This role can and should further expand to the agricultural sector of Pakistan.

Pakistani banks are playing a very portentous role in the development of infrastructure sector where limited recourse project financing is extended in accordance with the applicable government led policies. Furthermore, banks’ contribution towards power sector in Pakistan has also been commendable. The said role can further be enhanced by utilization of SBP Refinance schemes for renewable energy projects but the same is not available for Islamic Banks therefore, since I have been given the opportunity to discuss role of banks in the economic growth, from this platform, I would like to reiterate that such refinance facilities should also be available for Islamic banks so that energy shortfall can become manageable, which would result in more sustainable economic growth.

It is worth highlighting here that as banks in Pakistan gear for greater efficiency and profitability; management of the finance-growth nexus is in fact one of the greatest challenges for Pakistan’s economy. We know that there still exists a gap in terms of provision of long-term financing for various industries, SMEs and agricultural sector. A large number of underserved businesses, entrepreneurs and industries still represent a stark reality for Pakistan and the banking sector is still struggling to provide affordable financing to cater this large demand.

Thankfully, with State Bank of Pakistan’s deliberate focus on financial inclusion, things are changing and improving with some improvement in conversion of the unbanked population towards banking channels. Banks are no longer relying on brick and mortar branches but are moving towards alternate delivery channels and branchless banking. Mobile wallets are becoming more and more popular as SBP further pushes for developing a tier of simplified accounts. To summarize the role of banks in a few sentences is however an uphill challenge and cannot exclude the ground realities of this economy, including the fiscal and external elements. We face the perennial crisis of balance of payment and hence the need to formulate future policies based on such and similar preventions is also necessary.


IRFAN SIDDIQUI: Innovation in Pakistan’s banking sector has remained sluggish in the past few decades but lately banks are striving to keep pace with disruptions in this industry through technological advancements. Technological transformation in the financial sector has not only forced banks to evolve in terms of their services but has also spurred a change in the attitude and thinking patterns of the customers.

We are now dealing with a new generation of tech-savvy customers who are demanding more convenient, more reliable and quicker transactions than ever before. In order to cater to this growing segment, Banks are evolving with newer product and service suites to meet their demands. I believe, lately Pakistan’s banking sector is responding well to the innovative demands of its customers and is working towards bringing payment solutions that are changing the face of banking. From Fintech collaborations promoting open banking to cardless withdrawals, bio-metric banking technology to instant digital on-boarding of customers; Pakistan’s banking sector is evolving not only in terms of technology but also service avenues.

Alhamdulillah Meezan Bank had already forecasted this tidal wave and had launched its branchless banking initiative in 2015. Meezan Bank has also recently launched Pakistan’s first EMV card that is both NFC and QR code enabled. Meezan Bank is the first bank in Pakistan to launch the tap-and-pay technology for Pakistani customers. We are also working on stepping up our digital strategy to revolutionize Islamic banking for our customers.

We now have a robust platform to build on to further facilitate our customers. Branchless Banking (BB) in Pakistan is now serving as a crucial link between the rapidly digitizing financial services sector and the unbanked customer. With a growing focus on BB transactions, Pakistani banks are now bringing greater transparency and efficiency to the economy. Keeping in view these disruptions, Meezan Bank is therefore focusing on building the right channels to serve the financially excluded population of the country in order to provide them with the right mix of convenience, speed and reliability. Specifically speaking of innovation in the Islamic banking sector, I would like to highlight that the Islamic finance industry is still in its infancy and while the growth has been remarkable, the challenges pertaining to fulfilling the Shariah requirements such as delivery, storage, liquidity management and even documentation are many.

I believe there is a lot of on-going research that aims to help Islamic bankers tackle these issues but for Islamic banks in Pakistan; our key challenge involves ensuring that all transactions and deals are based on the fact that the seller and buyer have actual possession and control over the commodities.


IRFAN SIDDIQUI: The performance of Pakistan’s banking sector will continue to be hit by the current lower interest margins. As a large chunk of government securities mature and leave the market, the resultant net interest rates will suffer. Banks are likely to revert to their lending and look for new lending avenues because of lower discount rates. Pakistan’s strong macroeconomic climate will urge businesses to expand their presence and banks will continue to invest in infrastructure projects but let us not forget the impact of CPEC that is likely to have a positive impact on the banks given the increased focus on infrastructure development. We are eyeing at growing industries that is likely to have a positive impact on the deposit and money-supply growth in the country.

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