HBL initiates new products
Loan for salaried class
By AMANULLAH BASHAR
Sep 11 - 17, 2000
Habib Bank Limited has taken initiative by introducing a soft
term "flex loan" scheme for salaried persons to obtain collateral-free
credit. The scheme is likely to formally launch sometimes next week.
The step taken by HBL Bank by extending the banking facility
so far restricted to the affluent class, to the access of the salaried class may
prove a trendsetter in the banking business. Although the scheme is restricted
to the employees of selected companies, yet it may be termed as an ice breaking
which may help generate economic activities also if other banks join the hands.
Besides this scheme the bank has its ambitions of broadening
its operations through the retail-banking network. HBL has plans to make
particular efforts to enhance its business with small and medium enterprises, a
sector, which makes an important contribution to Gross Domestic Product.
According to Zakir Mahmood, President HBL, the new loan
scheme has been especially designed for salaried class, which face difficulty in
obtaining soft term loans from banks.
The scheme carries a marketing technique in a professional
way to expand the deposit base of the bank. It is a personal loan product for
salaried persons of defined organizations to ensure 100 per cent recovery. The
salary of the borrowers will be routed through the banks and they will have to
open their account with HBL to secure this loan, which ultimately help
strengthening the number of account holders.
The repayment will be made in monthly installment making the
repayment easy for the borrowers. The scheme puts no restrictions on the
borrowers regarding utilization of the loan. The maximum credit limit will be
Rs300,000 with the flat mark up rate of 9.5 per cent annually on declining
balance. HBL feels that it will be cheaper than any foreign banks and has been
designed in accordance with the repayment capability of salaried class.
The Board of Directors has also decided to increase the
capital base by making a right share offer at par in the ratio of 1:1. In June
2000 an amount of Rs8 billion was received from the banks principal shareholder,
State Bank of Pakistan on account of subscription against future issue of right
In order to strengthen the capital formation, the bank
intended to list HBL on the Karachi Stock Exchange to allow the bank to
ultimately offer its shares to broad base investors. The aforesaid financial
measures would augur well for infusing greater confidence in HBL in the minds of
prospective investors who could be expected to participate in the ensuing right
At December 31, 1999 HBL's outstanding loans and advances
were estimated at Rs181 billion as against Rs160 billion in the previous year of
which 32 per cent were non-performing. The level of non-performing loans was
however reduced from 35 per cent in 1998 to 32 per cent 1999. Since the last
quarter of 1999, under the government's initiative an environment has been
created for accelerating the restructuring process on problem loans. During the
year HBL made cash recoveries of Rs4.4 billion and restructured Rs14.5 billion
of its problem loan portfolio.
HBL holds the second largest share of the country's deposits
having a market share of 21 per cent. Of the deposits held by local branches
over 89 per cent is local currency. In 1999 HBL deposit base stood at Rs251
billion, versus Rs239 billion in 1998. During 1999 there was a growth of 3.5 per
cent in industry deposits. HBL's deposits increased by 5.5 per cent which is
significant given the deposit base shrinkage of Rs1 billion on account of the
carry over impact of the May 1998 decision to freeze foreign currency deposits
(Rs6 billion) and the July 1999 discontinuation of HBL's Crorepati Rupee Deposit
Certificate" (Rs5 billion).
The bank also played a key role in handling the country's
foreign trade and remittance business. During 1999 Rs164 billion in foreign
trade and remittance was routed through HBL of which Rs73 billion comprised
exports (1998 Rs67 billion), Rs76 billion imports (1998 Rs71 billion) and Rs15
billion remittances (1998 Rs18 billion). Persistent efforts are being made to
increase HBL's share of the country's foreign exchange business. The
international operations of the bank continue to be rationalized with a view to
creating a high yield business. To meet this objective the bank has concentrated
on lowering inter mediation costs by launching an automated system to handle the
trade finance and payments businesses in 16 locations, restructured and
downsized U.K's branch network and reduced the overall head count. Due
concentration was also given to restructuring and retrieval of non-performing
loans which are adequately provided for.
HBL believes that the focus must be on ways to optimize
shareholder earnings with stakeholder value. Whilst maintaining a client and
employee relationship the bank must make decisions that will help achieve its
profitability goals in terms of increasing revenues and containing expenses.
The bank believes that the coming 12 to 18 months will be
challenging. Going forward the bank intends to focus on:
* Improve operating efficiency via re-engineering process and
centralizing functions to generate substantial increases in productivity.
* Upgrade technological infrastructure so as to provide a
uniform service system across the banks network that will allow much higher
levels of efficiency and customer service.