Jan 28 - Feb 03, 2008

NBP is the largest bank of Pakistan with the largest borrower base (7.5 million active account holders) exceeding one million customers. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and through representative offices. PAGE met the Senior Executive Vice President and Group Chief of Commercial and Retail Banking Group of NBP, Mr. Amer Siddiqui and talked about how National Bank is working in the drive of the current credit off-take situation.

We talked about the credit related activities and recoveries and advances by NBP. According to Atif Malik, a researcher at JS Research ìDue to the high growth in money supply (M2) and support witnessed from foreign inflows, total deposits of the banking sector grew by an impressive 19 per cent in 2007 and reached Rs3.57 trillion as on Dec 29î.î Letís take a look as to what Mr. Siddiqui disclosed in his interview with PAGE.

PAGE: Firstly tell us a bit about the overall performance of the NBP in the year 2007 in terms of the credit related activities, advances and recoveries?

AS: As far as the actual results are concerned, we are a public limited company and we canít disclose the results without the due approval from the board and management nonetheless. According to the results disclosed in Sept, 2007, NBP since the last five years is the number one bank of Pakistan, itís in all aspects is the largest investment corporate bank, largest commercial bank lending to agri sector and we are the largest in terms of the depositorís base. The turnaround came in the year 2000; before that NBP was in the government sector and was not listed and neither did it has an independent board. In 2000, NBP was made independent with professional management when Mr. Ali Raza took over as a President. With hardly 5% new intakes, NBP progressed with the same team of professionals who were working with it. Before the year 2000, 90% of the loans were given to the government and the government corporations, now it is all changed, today 90% investment is in the private sector. In the year 2000, State Bank reported that NBP has 95000 borrowers; today we have around 1.5 million borrowers. Now the consumer loans are also made available to the poor majority through NBPís own effort in the retail banking sector.

The Banker magazine of the Financial Times group has been rating NBP as the most profitable bank in Asia and one of the most profitable in the world for the last several years. The return on capital is one of the best in the world. This all has become possible as the country is having an enabling environment, government own focus is there to let the professionals work without interference.

Our board then formulated a policy that we would also access the un-banked and the un-accessed sector of Pakistan. In that regard National Bank has gone to a new area, to those people who were not earlier entertained by the banks and they thought that they couldnít borrow as they didnít have the big collateral as the requirement to be fulfilled. In order to cater the 25% poverty stricken people of Pakistan, NBP with the help of the government launched the ìRozgaar Schemeî. It is launched fully in April, 2007 and in the first nine months, we accessed 75,000 people and around 5.5 billion rupees was approved and disbursed for the scheme and most of the people were delivered with the assets they opt for from the scheme, now they are earning Rs. 500-800/day. We had a great difficulty working through this scheme as we have to literally educate the people for their own benefit. We made a call center for their help and also spent millions on advertising, road shows etc. We target the people from all across Pakistan and our 65% of loans are now concentrated in the rural areas while 35% is rooted in the urban areas of Pakistan. Our target is to give loans of around 105 billion rupees to almost 1.8 million of the Pakistani population.

PAGE: How does the recovery is going in that regard?

AS: Well, when we started the consumer banking, we targeted the lower and middle income group, we launched schemes like ìadvance salary loanî with zero minimum requirement. We disbursed huge amount and recovery is almost 99% and loss is less than 1%. We charge 20% low than the actual market rates. We also disbursed millions in our housing scheme by the name of ìSAIBAANî, where we have no minimum income requirement and in that area also the recovery is very good.

PAGE: Still we have seen a declining trend in the credit growth momentum of the banking sector in 2007, how NBP reacted to that situation?

AS: It is not the case with the National Bank as we didnít go to the categories like credit cards (which we started up in 1997 but later stopped due to the market concentration), we also didnít go to the Auto finance as according to our market research, these are the categories that are already overriding by the market players and in that competition those banks are not mitigating the risks involve in these activities hence they got hit with the default ratio in those schemes. We will launch our credit cards this year and will go into Auto Finance in the next year subject to the market response. NBP has always chosen its products after deep market research and strategic study.

PAGE: What do you think why these areas like ìAuto Finance and Housing Financeî got hit badly?

AS: The commercial banks forgot about the risk management in this competition and they lent superfluously hence what they experience is the lot of defaults. People who couldnít own a single car, are leasing three or four cars and that is unmanageable for them to pay off the credit in time under due requirements. We in our strategy never just targeted the already banked customers as they are over leveraged and that it self is a risk, we through our strategy is focusing the poor population who was never financed by the banks so that they can get an asset to earn their living and pay off the loan easily. We lent 25,000 Auto rickshaws, so to not just to help the poor population but also to help the engineering industry.

PAGE: Do you think that the State Bank of Pakistanís monetary stance is one of the reasons for the credit off-take situation?

AS: Well, the State Bank has to adjust its monetary policy with regard to the prevailing inflation in the country. The commercial banks however need to remain vigilant towards this cycle that as the inflation rises so is the interest rates and will their consumers be able to pay off the loans on the rising interest rates scenario. They should do the stress testing exercise for not to be caught in the worse circumstances. Also the borrowers remain indifferent towards the changing situation as they should also know that how much they can afford to pay off for the loans that they have taken from the banks.

PAGE: How do you then think that the situation is viable for the National Bank to launch the ìcredit cardsî this year?

AS: We have our own customerís base which is around 1.5 million, we know about the repayment capacity of each and every customer. The whole market of the credit card is not more than 0.6 million and if we disburse 1.4 million cards on the first day then we will be the biggest player in the market. State Bank has now also made a bureau by the name of ECIB ìElectronic Credit Information Bureauî with which help you can get the summary of the persons who have taken loans from different banks, hence you can judge according to the personís borrowing and income history. With the help of the following we will spread our consumersí base and these measures will also help us extenuating the maximum risks involve in this activity.

PAGE: How do you see the political instability adding to economic instability and what is the future outlook for the strong financial sector of Pakistan?

AS: Economic instability that we are having these days is not the real shortages but the artificial shortages that is created by the hoarders. For e.g. the wheat crisis, where the total production of wheat in Pakistan is 23 million tones, 0.5 million tones was exported, and 1.5 million tones was imported hence the total wheat in the country is around 24 million tones. For the population of Pakistan, 16 million tones is enough and the 20% shortages that we are observing means that around 13 million tones came in the market and the rest 11 million is in the storage by the hoarders, and the value of that wheat is 5.5. billion USD in the international market.

As far as the financial sector is concerned, State Bank has now made a resolution that the commercial banks must provide a clear balance sheet and if there are bad debts then they must be provided off too hence the banks balance sheets are clear. This has done recently in 2007. Earlier banks can keep the value of the collateral and they donít take that loss out of their profit but from this year this has become clear due to the stringent resolution of State Bank.

PAGE: The banking sector witnessed the slowest credit growth in the last 5 years, however the deposit growth remained impressive in 2007 (19%), how would you review the situation?

AS: Credit growth is also high but earlier the advances were less for e.g. according to 19%, the deposits that were 100, now they are 220 and the advances that were only 10 now according to 25% are just 40-50. Amount wise it is not healthy but % wise it is. Borrowers are also getting shy as they understand that the money they have borrowed has to get submitted as the banks can make their lives miserable otherwise. The banking industry advance deposit ratio is over 70% which is very healthy. As long as it is between 50% to 80 %, it is healthy. If it is near to 50% that means that the market is more liquid and when it is near 80% that means that the market is ill liquid.

PAGE: In which category NBP observe that the credit demand is high?

AS: Well, there is one area that is not targeted which is the small businesses like (Tyre wala, theley wala etc) who donít come under Rozgaar scheme or in SME sector but in small business sector. We made a pilot project for those people who have remained successful and we will launch the whole scheme in 2009 through out Pakistan. Till now we have given a 0.2 billion rupee loan and recovered around 98%. These small businesses sector do have their credit requirement but they donít know how to make the document so we gave around thousand loans to those kinds of people last year on experimental basis. We help them by working out with their documents, their balance sheets as the State Bank has also relaxed its balance sheets requirements so it becomes possible for us to cater o that segment too. It is the sector where the growth is very low but the demand is high. It is a 2.5 billion rupees market with a base of over three million customers.