MEEZAN BANK OPERATING WITH FARSIGHTEDNESS
SHABBIR H. KAZMI
Apr 9 - 15, 2012
Meezan Bank is about to complete ten years of its operations. This is not only an eventful history but over the years, the bank has also become synonym to Islamic banking in Pakistan. Its outstanding performance has been acknowledged locally as well as internationally.
Whenever people talk about Shariah compliant banking, the first name that comes to their minds is Meezan Bank. It is also true that being the industry leader the biggest responsibility of it is to ensure that not only every transaction concluded at the bank is fully Shariah compliant but it also has to work harder for ensuring modest return to the investors.
The biggest achievement made during the years is that now Islamic banking has attained the status of ethical banking and is also contributing towards development of other industries i.e. asset management and insurance.
At present, Al Meezan (fully owned subsidiary of Meezan Bank) has attained the status of the largest asset management company of Pakistan operating in the private sector. It also enjoys the distinction that all the funds under its management are fully Shariah compliant. To explore the eventful history and plans, Pakistan & Gulf Economist (PAGE) talked to Muhammad Raza, Executive Vice President and Head of Consumer Banking Meezan Bank.
PAGE: WHAT ARE THE MAJOR BENCHMARKS ACHIEVED BY MEEZAN BANK SINCE ITS COMMENCEMENT OF OPERATION ABOUT 10 YEARS AGO?
MUHAMMAD RAZA: While it may be said that in many areas Meezan Bank is the pioneer, its management believes that the most humble contribution of the bank is creation of awareness among people and the confidence that Islamic banking is superior to conventional banking. At present, Meezan Bank has 275 branches spread through out the country and also a solid base of Rs170 billion deposits. The other major achievement is that people groomed at Meezan Bank occupy key positions in almost all the banks offering Islamic banking option. Meezan Bank has also been instrumental in the development of liquidity management tool, Sukuk. This has not only enabled the private sector to mobilize funds but also the government of Pakistan to issue Sovereign Ijara Sukuk, which has eased pressure on conventional banks.
PAGE: CAN MEEZAN BANK BE TERMED THE LARGEST ISLAMIC BANK OF PAKISTAN?
MUHAMMAD RAZA: At present, Meezan Bank is termed the largest 'full service' Islamic bank of Pakistan. It has the strongest outreach. During last ten years, it has opened up 275 branches nationwide. By any standard, this growth can be termed the most outstanding. Even conventional banks have not been able to open up branches at this fast pace. The other point is that deployment of technology gives Meezan Bank omnipresent status. Offering 'all the solutions under one roof' has made the bank a preferred choice.
PAGE: WHAT IS THE SINGLE LARGEST ACHIEVEMENT OF MEEZAN BANK?
MUHAMMAD RAZA: The most contentious issue faced by commercial banks around the globe as well as in Pakistan is growing size of non-performing loans (NPLs). As against this, NPLs of Meezan Bank are still below one per cent of its total financing. This remarkable achievement has made because of stringent credit appraisal and no compromise on Shariah compliance. Since lending is asset-based, it gives the institution an opportunity to understand the business model being followed by the borrower and mindset of sponsors/management.
PAGE: MEEZAN BANK IS OFTEN TERMED THE MOST ACTIVE PLAYER IN CONSUMER FINANCE. WHAT ARE THE EVIDENCES OF THIS GENERAL PERCEPTION?
MUHAMMAD RAZA: The general impression is that now commercial banks prefer to invest in government papers because of being risk free and also offering attractive rate of return. However, Meezan Bank continues to enjoy the status of major player when it comes to consumer finance. Its car Ijara constitutes nearly 20 per cent of total auto financing done by all the financial institutions. It is also an active player in housing finance. The available tenor is up to 25 years and cost of financing is very competitive. Most of the clients belong to 'salaried class' enjoying regular and stable income inflow.
One of the latest facility offered under consumer finance is computer (laptop) financing. Clients can get financing from Rs50,000 to Rs150,000 by making 15 per cent down payment for tenors as low as three months to 24 months. The rate of financing is competitive and product range offered is also dependable. Added advantages are two-year warranty and Takaful cover. At an average, 150 units are being financed monthly.
PAGE: HOW FAR THE PERCEPTION IS TRUE THAT ISLAMIC BANKS CHARGE RELATIVELY HIGHER MARKUP RATES AS COMPARED TO CONVENTIONAL BANKS?
MUHAMMAD RAZA: This impression is not based on reality and the biggest point that confirms competitiveness of markup rates being charged is growing portfolio of financing, especially car Ijara and mortgage finance. It may be said that Meezan Bank is very stringent when it comes to credit approval. This policy is based on centuries old concept that banks are custodian of funds belonging to depositors. Therefore, not only ensuring security of fund is the responsibility of any financial institution but maximizing return to depositors is also a responsibility. At times, people are willing to accept lower return on deposits, if it is Riba free.
PAGE: WHAT ARE THE PLANS OF MEEZAN BANK?
MUHAMMAD RAZA: Having achieved reasonable outreach has enabled us to mobilize substantial deposits. One of the distinguishing features is that now accountholders feel comfortable in placing deposits for longer duration. This is helping in overcoming mismatch in deposit and financing tenor. Till recently deployment of deposits was a problem but issue of Sovereign Ijara Sukuk has opened up new vista. Meezan Bank is actively working on the development of new asset and liability products to further improve its product range and quality of service. Agri and SME financing is also being pursed actively because these segments enjoy enormous growth potential.