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HBL initiates new products

Loan for salaried class

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.

Capital formation

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 shares.

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 shares offer.


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.

Market share

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).

Foreign trade

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.