Low interest rates helped attracting a large number of new customers to the banking arena

July 25 - 31, 2005

Record level of private sector credit during the past couple of years has been one of the key factors that have put the country on the cycle of economic growth. Low interest rate environment and focus of the banks on diversification of their portfolio has helped in broad based growth in different sectors of the economy. Furthermore, to continuously improve the bottom line at the time of reduced margins made it imperative for the banks not only to go for diversification for risk management purposes but also look for the untapped markets for better margins with sustainable growth. The liquidity in the banking system, thanks to the consistent upward trend in remittances, provided the necessary impetus to satisfy the increasing credit needs.

Mr. Mohammad Aftab Manzoor, President & Chief Executive of MCB, who is a seasoned banker, made these observations while outlining the overall performance of the commercial banks in an exclusive interview with PAGE.

He further said that innovative product offerings and aggressive marketing coupled with low interest rates helped in attracting a large number of new customers to the banking arena, thus generating economic activity at a massive scale. The benefits of attractive and low cost consumer financing schemes were visibly trickling down in different areas of the economy, like automobile, and electronic and electrical appliances industries during the last three to four years in Pakistan. The growth in the automobile sector of the country provides a glimpse of the success and progress resulting from the availability of consumer finance to fulfill the individual needs as well as to invigorate industrial growth, as reflected in the robust growth in demand and supply of the automobiles. However, at the same time it can be seen that financing alone cannot be a panacea for economic growth, there needs to be a proper infrastructure in place. Case in point is the house financing sector, which was expected to be the engine of economic growth, but the expected benefits of the low interest rates could not be availed mainly because of exorbitant land prices artificially raised by the speculators. The highly speculative land prices proved counter productive for house financing products.

Mr. Manzoor also attributed the outstanding performance of commercial banks to the privatization of banks in Pakistan, which he felt paved the way for the induction of true crop of skilled and professional management. In the current scenario, the banking system being run by the private sector has emerged to the status that is second to none in this region. In fact, the banking sector is far ahead of some countries in the region, in terms of innovative financial products, technological pervasiveness and professional management, he remarked with a sense of achievement. The efforts and commitment of the State Bank of Pakistan in ensuring an enabling environment is commendable.

The impressive financial results achieved by MCB for the first quarter of 2005 speak about the spark and dynamism of leadership leading to a remarkable profit growth of 136.1 percent during first quarter of the year. The profits before taxation in the first quarter stood at Rs2.007 billion as compared to Rs850.1 million in the corresponding period of the previous year.

Mr. Mohammad Aftab Manzoor, who is successfully managing MCB's huge network of 942 branches in Pakistan and 5 branches outside the country, does not single out the excessive private sector credit extended by the commercial banks as the main cause of the mounting inflationary pressures. He said that the demand as well as supply side factors such as rising fuel prices, shortage of some food supplies, etc all played their part in increasing inflation. Secondly, the low interest rates of the past few years, however, were expected to rise as the economy continues to expand.

Elaborating on the question of huge increase in consumer lending, the MCB President said that the commercial banks have to operate within well-defined parameters set by the State Bank of Pakistan through its monetary policy. At the same time, the banks have to use their liquidity in profit generating products and have to look for profitable business to serve and protect the interest of the shareholders, sponsors and other stakeholders. Also, the banks have to diversify the risk to protect interest of the shareholders. In this backdrop, the commercial banks due to reduced profit margins from corporate business in the low rate environment had to find ways to put their piling up liquidity in consumer financing and other avenues which offer good rate of return. Not only the low interest rates but also the advances in communications technologies and other technological tools have dramatically broadened the provision of financial services to the masses or to the people whose banking needs were not met before.

When asked how the increasing interest rate will affect consumers, he said some households might be affected by the higher rates, but I believe that concerns about their effect on repayment burdens can be overstated because most consumer debt carries a fixed interest rate, which slows the adjustment of interest costs to rising rates. In the long run as well, I see that the rates are going to be stable soon. During the past two to three months, State Bank of Pakistan has been aggressive to address the inflation issue because it's the major concern of the government and the SBP. In his expert opinion, the interest rates have been stabilized rather showing sign of tapering off. The recent T-bills auction by the State Bank of Pakistan gives an idea about interest rate movement.

On the question of future expansion, the President said that MCB has a plan to open its operations in Kabul soon. Afghanistan is gaining importance for the commercial banks in view of growing export flows from Pakistan, especially export of cement and other commodities. This emerging market also offers attractive business opportunities. In Gwadar, MCB has already established its operations having the highest deposit base in that future port city. The development of Gwadar, however, is in the process and needs more time to come into the mainstream, he remarked.

Recently, a 100 percent owned subsidiary has been incorporated and started functioning in Hong Kong with the name MCB-Trade Services Limited in collaboration with Standard Chartered Bank, Hong Kong. It will reissue Letter of Credit issued by MCB branches meant for China, Japan, South Korea, Taiwan and Hong Kong.


Brushing aside the misconception that the commercial banks have no mandate to put their money in long term financing, the MCB President remarked, "No body has stopped commercial banks to go for long term financing. Actually, the long term project financing has become more significant for the commercial banks in the absence of Development Financial Institutions (DFIs) in Pakistan.


A separate SME Financing Division was also set up to provide customized financing solutions to the very important segment of the economy. One of the other important initiatives that were taken includes revitalization of the leasing business which would not only provide more financing options to the customers but is also expected to expand the asset base of the branches. The Bank has also put more emphasis on agriculture sector and as a result the Bank's share has increased in the seasonal financing needs of the sector and in tractor financing.


MCB has further reinforced its position in the consumer banking arena by streamlining and re-launching the consumer financing products and introducing more convenience based solutions. The Bank is offering auto finance and house finance products at competitive rates and has also recently launched a running finance facility against mortgage of property. The Bank provides the most powerful multifunctional ATM/Debit Card in the country which gives unmatched convenience to the customers. During the year 2004, the MCB introduced more IT based products to cater to the changing lifestyles and needs of the customers. MCB's Virtual-Internet Banking with its wide ranging banking solutions for the individual as well as corporate customers has become the most preferred Internet banking solution in the country. MCB also has the privilege of being the first bank in Pakistan to offer the most comprehensive bill payment facility through its alternate delivery channels which include Internet Banking, ATM and MCB Call Centre.


The Islamic banking initiative has been very successful in attracting new customers, both individuals and companies. Similarly, those relationships which were confined only to current account facility have grown into stronger business relationship. The Islamic Banking branch network, currently covering five major cities, will be further expanded to other metropolitan areas and new Shariah-compliant banking solutions would be offered to a wider range of customers for satisfying their individual and business needs.


MCB has been receiving international accolades in recognition of its consistency in growth and performance. MCB has become the only bank to receive the Euromoney award four times in the last five years. The Bank won the "Best Bank in Pakistan" award in 2004, 2003, 2001, and in 2000 the "Best Domestic Bank in Pakistan" award. In addition, MCB also has the distinction of winning the Asia Money awards for being "The Best Domestic Commercial Bank in Pakistan" for the last two years.


The overall revival in the economy and confidence in the policies will continue to brighten the business prospects and credit quality of the banks. Pakistan's exports which are skewed towards textiles and its allied products have performed impressively not only by meeting the target but surpassing it with a big margin. The negative repercussions of rising rates are expected to be more than offset by the benefits that accompany economic growth and balance sheets of banks will continue to grow in line with a growing economy. MCB, however, seems determined to continue efforts to increase efficiency and optimize product and service range. The comprehensive portfolio of business initiatives is aimed at capturing additional profit growth potential. While further credit expansion is high on the agenda of the bank, MCB is however vigilant and continues to closely manage risk-weighted assets. Similarly, to ensure availability of sufficient funds for building assets, the banking sector will be focusing on mobilization of cost effective funds. Continued cost discipline will remain a clear priority, as MCB is committed to maintain rigorous attitude in reducing cost base, constantly improving the efficiency of business, infrastructure platforms and internal processes.



Rs in (000)

Total Assets


Share Holder's Equity








Profit After Tax