SADAF AURANGZAIB, Senior Correspondent
Sep 11 - Sep 17, 2006

United Bank Limited established in 1959, is now forty-seven year old. It is one of the largest private banks operating in Pakistan having assets of over Rs. 380 billion and has 1100 domestic branches all over the country and 15 overseas branches. UBL is one of the leading banks in Pakistan related to its consumer banking. We have met Sohail R. Bhojani, Senior Vice President Secured Loans Division, who is a chartered accountant by profession and has proved to be an asset for UBL. Following are his views about the banking sector in Pakistan which are present to share with the readers to learn about the success of UBL in leading the race of plastic money in consumer banking.

PAGE: UBL has introduced many modes of credit oriented products like UBL chip credit card, UBL business line etc, how effective you are in these services in drawing customers towards UBL?

SOHAIL R. BHOJANI: UBL in the last three years have launched several products in the field of consumer finance, one of them is the credit card which is a chip credit card and is backed by Visa, there are also other products like Auto loan for cars, home loan for mortgage, UBL cash line and UBL money visa to personal finance products for consumers. What we try to do is to offer products to customers which they need, there is a big demand for our products in the market as well as we offer something unique which other banks are not offering. It is a very competitive environment, there are 15 to 20 banks working in consumer financing and offering the same kind of products but each of our products is distinguished from the rest of the market because of certain unique features, the case of point being the credit card which is an EMV chip credit card. We were the first banks in Pakistan to launch a chip credit card and the number of customers that we have managed to gain over the last two years can gauge the success of this product. We are one of the last entrants to the consumer banking industry but are the fastest growing as one of the largest portfolios in the country.

PAGE: What basically is a chip credit card?

SRB: Normally the credit cards available in the Pakistani market are all magnetic strip credit cards where as if we turn the card on the reverse side, there is a magnetic strip and that stores customer's information and personalizes the card. It is the older technology; the chip credit card enables us to ensure that a lot more personalized information can be stored on the card as far as customers are concerned. What it does essentially is making the card almost completely fraud proof. It is statistically proved that the chances of fraud on the chip credit cards are substantially less than that on the magnetic strip credit cards. What it also does to allows us the use the information that we have picked up on the customers to be able to service the customers better, to be able to reward the customers better which again a magnetic strip card won't be able to do for example if you were to walk into that grocery story that we are in alliance with and use your UBL chip credit card, the terminal will recognize that you are a UBL customer, this is your second visit to the store in this month and the second visit entitles you to a free gift etc. This is the power of a chip credit card.

PAGE: UBL is still in the initial phase of consumer financing, yet you are a market leader. What is it that is making UBL to grow on such a fast pace?

SRB: UBL has been around for about fifty years, started in 1959 and has a lot of history. It has a three million-customer base in terms of deposit customers and those who have their bank accounts with UBL making it as the second largest private banks in Pakistan.

What we have done in the last three years is rejuvenated UBL. There were a lot of negative factors attached to it prior to its privatization. However we managed to actually place UBL as a new forward-looking corporate entity in the consumer's mind. Added to it we have a geographical reach perhaps one or two other banks, which can actually match it.

Present, we have 1100 branches all over the country besides branches abroad. And this network cannot be reached by most of other banks.

Our products are based on innovation and we are not just copying the rest of the market, and each of our products can stand on its own, with special features. These factors have actually given us an edge and helped us grow over the years.

In fact, the banking industry has grown rapidly during in the last couple of years and the demand for consumer finance has increased tremendously.

This is a reflection of the progress in the economy of the country and resulting in the improvement of the lifestyles of the population.

PAGE: If we look towards the demand and supply graph of the country, the gap has increased, how do you think is plastic money facilitating to bridge gap?

SRB: The economy of our country is structured in a way where there are a lot more un-banked people and the un-banked sector is much bigger than the banking sector. There are efforts on the part of the government and State Bank to bring more and more people in the banking net but it is still a battle that needs to be fought and won. We are still catering to a very small segment of the total population of the country so yes it is not being successful in the sense that it is not being mass marketed. What we are trying to do is to improve the lifestyle and improve the choice that the banking sector has to offer. It is incumbent on the government and the State Bank to actually bring about more and more people into the banking net and may be even follow the banking example that are prevalent in other countries of Asia such as Gramin Bank of Bangladesh.

These banking facilities are available at a massive scale to the lower strata of the population in that country and has been extremely successful and yielded results. In Pakistan we can also follow suit in the areas of co-operative banks, agriculture banks, and labor banks etc. It is just a start in Pakistan, currently there is the Tameer Bank and Tarqiati Bank but a lot more efforts have to be put in to make it viable so as it reaches all the villages and people concern.

PAGE: How strong is the consumer demand for plastic money? do you think less of savings on the part of consumers is also a reason to boost this growth?

SRB: Traditionally we are not a nation of savers. We are a nation of spenders, which is good news for the banks because that's where we will be able to market a lot of consumer financing.

Banks have to be responsible however in lending, as it is easy to lend more and more money to people who are not savers but it has to be in accordance with their pay back capability. If a customer is able to repay because he has sources of income that he can demonstrate then give them more loans but in a responsible manner. You can't lend to people who either are not used to using credit responsibly or to those who will not be able to repay in the future.

PAGE: Whatever banks do there is always a probable chance of default on the part of consumers; banks are trying to manage the risk involved. How is UBL managing this risk?

SRB: Time has changed in the sense that there was a lot of lending done in the 1990's which resulted in bad debts and loans written off virtually by all the banks of Pakistan. Since the last four or five years, a major role has been played by the State Bank of Pakistan. As they derived very strict guidelines as to how to lend and whom to lend. All of the banks have to follow the rules strictly.

From UBL perspective we have the largest collection support in Pakistan so we actually make sure that the money we lend is also collected. There are collectors collecting every month from customers when payments become due and payments are not delayed and customers are not allowed to default.

We try to stop them early rather than react when the customers stop paying us so that is a major improvement on the system that we as a bank follow.

What we have also done is that we have instituted world class information technology network whereby we have systems, processes and management information techniques available to us to make very informed decisions about whom to lend and whom not to lend. We also have detailed information based on cities, customer's profile, income profile and, business profile and family history. All this helps us is to filter out the risky customers very quickly.

PAGE: What is the probable default rate in credit oriented activities?

SRB: Typically at the moment it varies from bank to bank. It is anywhere between 1% to 4% and the average I would guess is about 2%.

PAGE: Now talking of interest rates, what is UBL's stance on interest rates?

SRB: We are in the club of the banks that enjoys the largest market share in the industry and we cater to about 3 million customers. Our pricing strategy therefore even from business point of view can never be described as the highest charging bank as we want to be the biggest in terms of customers-base and these two are contradictory each other. We are proud of the fact that our interest rate is either the lowest or one of the lowest in the market. At the moment our pricing is towards the lower income groups and in addition to our competitive rates we add innovation which virtually unmatchable by our competitors.

PAGE: How much rising inflation is hitting consumer financing and how would you justify that a consumer using these facilities is prudent enough in doing so?

SRB: It is a difficult question and a difficult thing to manage. There is rising inflation in the country, part of it is because of our reliance on imports. We import a lot of fuel that is the biggest import of the country and its price is rising constantly in the international market consequently we are importing inflation.

To curb inflation one of the measures that have been taken by State Bank is to increase the interest rates for the banks, which obviously slows down the economy as well as inflation. Because of the increase in discount rates for the commercial by the State Bank, the banks have been forced to pass on the high interest rates to the consumers in order to maintain their margin and to make sure that they remain profitable. So today, the consumer financing is more expensive as compared to what it was three years back.

With induced inflation there is a reduced ability of the customers to pay back resulting in reduced appetite for consumer financing. Here once again, the banks are required to be more responsible for they should visualize that inflation might accompany the defaults.

PAGE: How do you think that credit oriented activities have remained successful in raising standards of urban living and how long will it sustain?

SRB: In the urban centers it has made a huge difference to people's life. The number of cars on the roads can judge it and this is because the banks are offering easy car loans. It is also reflected in the growing demand of electronics goods, and jewelry, cell phones etc. As a large number of people using plastic money for the transactions. People are also using plastic money for their holidays, tours and vacations.

Actually this gives a sense of security especially on the back so much law and order situation prevailing in the large cities of the country. To answer your question about sustainability, as long as the economy remains stable and keeps on growing at a reasonable pace as it has been for the last five years.

PAGE: What are your comments on fluctuation in the growth rate of the economy and interest rates?

SRB: Interest rates were stable for the last couple of years but they now they are showing an upward trend as part of the SBP strategy to curb inflationary trends and pressures which could result in slowing down the consumer financing and the economic activity.

PAGE: What is the set profit margin in consumer financing for your bank?

SRB: Most of the credit cards in the industry are charging customers somewhere around 30% as interest rate. At present the discount rate of the State Bank is around 9% whereas the banks are borrowing at around 12%. The margin that is left with the bank, it has to fund all over head cost which consists of major expenses of staff and personnel setting up new infrastructure of the banks includes the biggest call center in Pakistan in terms of working twenty four hours.

We spend a lot of money in marketing and advertising, most of the bank do so, that has to come up with that margin. We spend a lot of money in rewarding our credit cards customers. We have one of the most unique customer reward programs in the country running on credit card. In fact it is claimed as one of the best running in South East Asia. We have been awarded by Visa; several international bodies for the quality of our reward programs have awarded us so that's a major cost to us. There is sales commission to be paid for every credit card. So there are lots of expenses to be managed. In the end, it all comes down to how best you manage your expenses and how well you economize without affecting customer services and without affecting the product so yes, on the face of it banks charging 30% sounds like a lot of money but if it were to break down the whole model of the business and actually take up all the expenses then its not a lot of it. It's how best you can manage your expenses.

PAGE: How do you see the growth of banking sector in the face of cutthroat competition around?

SRB: There is a huge amount of competition in the banking industry. There are 35 to 40 banks working in Pakistan. For a country of our size, in my opinion for a country of our size even 20 banks is sufficient and thus I see a lot of consolidation and mergers will continue to take place. The smaller banks are getting merged or will get acquired by larger banks. The State Bank is already driving other banks in that direction, as they have increased the minimum capital requirement.

The on going competition is likely to persist. I think the market will be dominated or the banks that are providing top class service will win the market share or they have innovative

The banking industry will continue to grow because of increasing trend of documentation and the sector provides security and financial benefits and solutions to the people.

PAGE: Lastly, tell me how far do you think UBL is going to remain a market leader in years ahead?

SRB: We are the market leaders. Our success is based on a very rapid growth over the last couple of years. The basic premise in each of our product is innovation and bringing something new, which the market needs but nobody else provides. So long as we continue to do that I think we will retail the leadership. I am very confident that we will be the leaders in the credit card market for a number of years to come as well as in other products.