Bank of Punjab eyeing for new heights in banking world


From KHALID BUTT, Lahore
June 27 - July 03, 2005

The Bank of Punjab established in 1989, and attaining the status of a scheduled bank in 1994, is finally taking off under a dynamic management to carve a niche for itself.

The bank which was set up in pursuance of the Bank of Punjab Act 1989, under the directions of Mian Nawaz Sharif with high hopes and to act as a catalyst for other provinces, has taken a long time to fulfill its avowed goals. But the credit must go to the present Punjab government for providing it the right leadership and ridding it from the clutches of bureaucracy and undue interference to let it breathe freely and grow like a modern bank.

A long line of senior or superannuated bureaucrats had failed to do what a young professional banker, hired from the private sector, has achieved in barely two years.

A youthful Hamesh Khan, with a MBA from US, and stints with leading banks like UBL and Citibank, has quickly turned around BoP with innovative approach, where 'babus' failed with their stereotyped style of management. Hamesh in his late thirties exudes confidence and spoke with the flair of someone who has a clear strategic vision of what he wants to achieve. He was also quick to diagnose the institutional weaknesses and went about rectifying them with the aplomb of a thorough professional. Selected by the present Prime Minister, who as Federal Finance Minister chose him from a long list of aspiring candidates, as the then head of interviewing panel, it must be held to his credit for picking up a right man. Hamesh has turned around a bank known for its non-performing loans and other weaknesses and is currently in a different world altogether.

As Hamesh put it, he chartered a clear roadmap for the bank, and made it clear be would not brook any interference or pressure. His emphasis was to set right key areas right like human resources, bring new technology and correct the balance sheet. The bank with 28 per cent of non-performing loans faced a huge problem. So did its manpower sans proper training and technology and motivation or flair for facing the tough demands of the banking sector. The result is visible in complete revamping of the BoP with its new-look branches resplendent with a modern and business-like look and service-oriented outlook of its employees. He has brought about a complete transformation in the bank, which he now sees its role as medium-sized bank rather than being among the ranks of non-descript small banks. The number of branches has jumped to 266 in all provinces completely automated with ATMs and he hopes by 2007, it will touch 300. There are currently branches in Sindh (4 in Karachi one in Dharki), one in Quetta, 4 in NWFP (Peshawar, Swat, D.I. Khan and Abbottabad) 3 in Azad Kashmir and 2 in Islamabad.

With a number of innovative schemes on the anvil, a highly customer-oriented approach and outlook the Bank of Punjab is indeed lucky to have Hamesh as a role model for any rising bank on the national scene.

Q. What do you think what is necessary for the Pakistani banks in the present tough competition scenario?

HK. Banks depended on leadership, better management and modern technology. Banks, being a part of the service sector, cannot work without the three mentioned aspects in today's competitive environment. Besides, three things are necessary for better management, which are: balance sheets, human resource departments and modern technology. A balance sheet will improve through revenues and profit growth especially in the small and medium enterprises and agriculture sectors. A 100 percent increase in assets and profit growth is the target for the Bank of Punjab's improvement.

Q. Whether the current regulatory environment allows the introduction of more sophisticated products, such as derivatives?

HK. SBP has already issued guidelines for undertaking derivative business in Pakistan. This whole exercise was handled professionally. A joint committee on derivatives was formed in 2003 comprising members from the State Bank, PBA, FMA, FMA and a few very senior bankers with experience of handling derivative business. All aspects of the product were comprehensively covered including accounting & tax treatments, legality of enforcing ISDA, initial product types and their demand. FMAP was assigned the responsibility to educate the market participants with a view to provide a level playing field to all the stakeholders.

In addition, a Risk Management Department has been established in the State Bank and the central bank is also preparing banks for compliance with the Basel Accord. SBP has already levied market risk charge and issued guidelines in this regard. Nothing is perfect and there is always room for improvement. There is good cultural change at SBP. It's now more open to advice and discussion on important regulatory issues.

Q: How did you provide Bank of Punjab the right course after taking its command?

KH: I had found that the morale of bank employees was very low and that should have to be improved as early as possible. I still am personally visiting each and every branch of the bank to boost the employees' morale. Information Technology has introduced at the Bank of Punjab for making it a modern financial institution. E-banking and automated computerized date keeping, like any automated industry, has helped in enhancing the bank's efficiency and reducing the chances of mistakes or corruption.

Q: What is the future planning of BoP?

KH: The increase in the capital limit of banks would stabilize the financial sector in the years to come. In the past, a small foreign bank, whose capital was only Rs 500 million, disbanded its operations in Pakistan due to a fraud that caused Rs 250 million loss to the bank.

Strong financial position of the domestic banks is vital to strengthen the financial institutions and the banks lending to private sector is expected to substantially increase in this financial year.

The Bank of Punjab is planning to expand the network of branches to 300 by the year 2007. BoP is working as a scheduled commercial bank with its network of 249 branches at all major business centres in the country and the number of branches is being expanded to 300. The present branch network will be enhanced to 266 by the year end, whereas 140 branches have been operating online.

Q: The State Bank of Pakistan is considering to increase the banks' capital requirement from Rs 2 billion to Rs 6 billion. Is the Bank of Punjab in a position to accept that challenge?

HK: The bank has readily met the upcoming challenge of raising the minimum capital to Rs 6 billion by the year 2009. By December 2005, the BoP will achieve the target of raising its capital adequacy limit to Rs 2 billion as prescribed by the central bank. At present the capital limit of the BoP is at Rs 1.88 billion and that will cross Rs 6 billion mark by December this year.

Q: Do you think that the measures to increase capital adequacy are appropriate?

KH: Yes, they are. All banks, including banks in Pakistan, today are confronted with a wider spectrum of risks than before, given the much greater range of products and services as well the requirements necessitated by new international regulatory and accounting standards. Larger levels of capital will therefore be required going forward to cushion against such risks. In addition, size will also become a vital issue. Small banks will feel the heat and mergers are therefore quite likely.

Q: Will the total lending to private sector would cross Rs 400 billion mark in 2005-06?

KH: I cannot say whether total lending to private sector would cross Rs 400 billion in 2005-06, but I am sure a substantial jump is expected in credit line to the private sector in Pakistan in this fiscal. BoP played vital role in the national economy through mobilizing untapped local resources, promoting savings and providing funds for investments.

The lending policy of the bank was not only cautious and constructive but also based on principles of prudent lending with maximum emphasis on security. The Bank of Punjab has introduced agriculture finance scheme for small farmers.

Q: How do you count the historic achievements your bank has achieved so far?

HK: The bank made history by earning an all time high pre-tax profit of Rs.1.735 billion as compared to one billion last year. The shareholder's equity increased to Rs 3052 million from Rs 420 million, as on 31st December 2004 with a comfortable capital adequacy ratio of 15.5 percent. The bank has achieved highly impressive growth in deposits, especially in the advances, almost stagnant for quite a few years, grew by 496 per cent to Rs 39,438 million as against Rs 18,344 million of last year, which was Rs 6621 million in 2002.

The bank's deposits increased by 130 per cent by December 2004 to Rs 54,724 million as compared to Rs 34,938 million, while the total assets increased to Rs 66,320 millions as of 31st December 2004, reflecting an increase of 125 percent over the last year's figure of Rs 43,621 million, which was 29,525 million in December 2002.

As a step forward towards our mission to become an IT-oriented bank we have successfully installed five ATMs while plans are afoot to add more ATMs at various branches.

The business situation has changed in Pakistan and the financial sector has to take the businessmen into confidence before making any new policy, as unilateral policies had not worked.

The Bank of Punjab (BoP) made a pre-tax profit of Rs565.153 million in the first quarter of the calendar year 2005, registering an increase of about 130 per cent over the same period last year. The bank's EPS (earning per share) improved by hefty 148 per cent during the period under review from Rs0.81 to Rs2.01. Advances also grew by 130 per cent to Rs41.365 billion against Rs20.394 billion.

In short, I can easily say that the bank has been showing 100 per cent growth in every sphere of banking for the third year running.

Q. What do you say of BoP's joining hands with Microsoft after signing MoU?

HK. The opening of Microsoft office in Lahore and the investment of US$ 10 million will generate a big number of job opportunities in the country.

Besides, BoP and GM Tractors (Pvt.) Limited have also joined hands to supply Universal Tractors to farmers on easy terms. In this connection, BoP has signed an agreement with GM Tractors (Pvt.). Under the agreement, the bank would provide 80 percent of the cost of tractors to the farmers for purchasing Universal Tractors against 20 percent down payment.

The bank's credit to farmers through various schemes has crossed the figure of Rs 1 billion. Rs 2 billion have been provided for issuance of agricultural credit, including credit facilities to the farmers to purchase 2000 tractors in order to support mechanized farming in the country. The bank is also planning to issue credit agriculture cards to the farmers for their convenience.

Q: And a few words about Punjab Modarba?

HK: Punjab Musharika offers the best combination of purity and maturity of income. Which means, certificates carry the most secure and rewarding return on investment. The Modaraba is committed to pursuing the improvement in certificate holders' value through the development of dedicated human resources and efficient system base capable of effectively participating in a competitive business environment. Modaraba would endeavor to extend the reach of the credit delivery system to stimulate the economic development.

Takaful is an Islamic mode of insurance. FPM has forwarded an advance request to Securities & Exchange Commission of Pakistan for grant of permission for launching the Takaful Insurance. SECP is in the process of finalizing rules and guidelines for the same

FPM COM Scheme is being formulated under the parameters laid down for this purpose by the Securities and Exchange Commission of Pakistan in its "Guidelines for Issue of Certificates of Musharika for Modarabas."