Oct 26 - Nov 01, 2009

Atif Salim Malik brings with him over 15 years of diverse experience in banking, marketing, management, and the financial services industry.

Atif has played an instrumental role in the planning and implementation of various retail and SME banking products at prestigious organizations, both in Pakistan as well as the Middle East. He holds a master's degree from the Punjab University with a concentration in Economics.

During the course of his career, Atif has been associated with the Standard Chartered Bank (Pakistan) Limited, Al Rajhi Bank in the Kingdom of Saudi Arabia, as well as with Union Bank Limited (Pakistan) in a variety of senior management roles. In addition to this, he also has diverse experience working with the Small and Medium Enterprise Development Authority (SMEDA) as well as the prestigious Lahore University of Management Sciences (LUMS) where he was a research associate.

In his present position as Head Marketing Strategy and Business Support (MSBS) at JS Bank, Atif is responsible for Marketing, Communications Management, Business Analytics, Financial Planning, and Product Management and Development, making him the funnel of most new initiatives launched by the Retail Banking Group at JS Bank.

Atif has also been officiating as Regional Head Central and has been instrumental in the development of the bank's branch network and business in the Central Region of Pakistan that encompasses most of metropolitan and rural markets of Punjab.

Recently, Page has conducted his interview: Following are the excerpts.

PAGE: Would you please discuss the current banking scenario and future outlook of Pakistan?

ATIF: In the past three to four years, banks had primarily focused on increasing their asset books which were essentially sourced by active solicitation of consumer loans. This scenario was considerably fruitful for both the banking industry and the consumer base of Pakistan.

The success of this strategy hinged on the growth of domestic and international economies. Therefore, when the major international economies experienced a slowdown, Pakistani exporters and businessmen could not escape unscathed, the result of this was an increase in non-performing loans from these sectors.

This situation was further aggravated by chronic energy shortages, increasing fuel prices, and global economic contraction, which all went towards hampering the overall business growth in the country.

At this moment however, I feel that the future outlook for the Pakistani economy looks positive. The government has unveiled the annual development plan for 2010 in which the economy is predicted to be back on track, growing at an annual rate of 3.3%. To achieve this growth, huge development expenditures have been announced on the basis of expected foreign aid inflows.

Additionally, to make this growth projection achievable, the State Bank of Pakistan is also gradually easing its tight monetary policy stance and has continued to reduce the discount rate to trigger economic growth. Banks' deposits are also increasing at a normal rate which will help in improving the liquidity in the financial market and positively impact the investment scenario of the country.

PAGE: What scope do you foresee for the smaller banks and what type of irritants are they facing to carve a place in the market?

ATIF: The smaller banks in Pakistan face an uphill task of maintaining a healthy liquidity position in an economy which is facing continued inflationary pressures and NPLs. Nonetheless, smaller banks can convert the perceived liability of being small into an asset by expanding on segments and niches which have been ignored by the larger banks.

These segments primarily are based in Tier 2 and Tier 3 cities. By focusing on this segment of the market, smaller banks can broaden their deposit base while simultaneously can work towards maintaining a low cost of deposit. Agricultural financing is another area where traditionally smaller banks have not focused and such niches can be tapped and developed by offering customized banking solutions and by maintaining high service standards.

The major irritant or impediment that small banks face in carving out a place in the market though, is gaining customer's confidence. This sometimes misplaced dearth of customer confidence in small banks has resulted in some smaller banks facing a higher ADR (Advances to Deposit Ratio) which forces them to obtain high cost deposits and that adversely affects their profitability.

Branch network expansion of smaller banks has also witnessed stunted growth in the three major metropolitan markets as they are already heavily saturated by the presence of all major and smaller banks, subsequently making growth and expansion towards smaller cities of the country is a more viable way forward for newer banks.

PAGE: Tell us about the performance of JSBL, its achievements, future plans for expansion and its financial results during the last financial year and projections for the current financial year.

ATIF: JS Bank has a clear vision of diversifying its deposit base coupled with a carefully chalked out network expansion strategy. We are increasing focus on core banking services with an enhanced outreach, better service standards, Alternate Delivery channels (ADC) including ATM network, contact centre, etc.

In the current scenario when a majority of banks are going through consolidation and retrenchment of their operations, JS bank on the other hand is focused on expanding its footprint, which is evident through our aggressive branch expansion endeavor in 2009. The expansion strategy will allow the bank to reap the benefits of an aggressive yet carefully considered expansion strategy in the coming years by giving it access to customers and markets currently inaccessible to other comparable banks.

PAGE: What is the impact of the financial slowdown on the banking sector and credit demand from private sector?

ATIF: The world is experiencing the second largest depression since World War II; the global economy is projected to contract by 1.3% and every economy with the exception of India and China, is in an adverse situation and has failed to achieve its economic and financial targets of FY 09.

Similarly, Pakistan also came under stress from the global meltdown but our system was much less integrated with the financial systems of the rest of the world and therefore achieved GDP growth of 2% in FY09. This was due to the stringent risk management policies of the banking system including the world class regulatory framework put into place by the SBP, small consumer credit base particularly mortgages, and a high degree of recovery achievements of NPLs.

Net non-performing loans as of 30th June 2009 stood at 3.6% to net loans and now the NPL picture is improving for banks as the majority has already taken major provisions on their portfolios. This is a good sign which indicates the start of better earning prospects for the banks. Secondly, the banking sector in Pakistan is small relative to the economy and it adds little to the GDP. The banking sector serves borrowers and depositors totaling 3.6% and 15% of the total population of 163.7 million, which still is relatively miniscule.

Therefore, a significantly weakened economy has not affected the banks in a major way, as seen in some other developed countries. On the other hand, the banking sector has a significant involvement in GDP growth by arranging finances particularly for the public sector. Since these loans are mostly used for public spending on various projects, this further adds to the acceleration in the growth of the economy.

That said the main casualty of the recession has been the lack of the private sector credit expansion which has recoiled to a great extent since the start of 2009. This is evident from the overall economic slowdown primarily in the manufacturing sector particularly export oriented sectors like textiles.

The credit demand from the private sector is gradually improving because of decreasing interest rates, but the slowdown in investment indicates that a reduction in lending rates at this point in time may provide the requisite growth impetus, although in the current scenario this is dependant upon multiple factors most importantly inflation which is being closely monitored internally as well as externally. An increase in investment would have a domino effect and will consequently increase the demand for credit.

PAGE: Consumer finance was one of the leading segments of the banking until recently, but it has started narrowing down. What are the factors behind this?

ATIF: Consumer financing in Pakistan witnessed phenomenal growth over the last 7-8 years, but currently, banks are experiencing a slowdown in consumer financing mainly due to economic slowdown and limited customer base as majority of these products were targeted towards an over banked segment clustered in major metropolitan markets.

The willingness of banks to grant loans on relaxed risk assessment, coupled with the low cost of borrowing encouraged a huge influx of customers for consumer loans in the past. A person already availing a consumer loan from one bank could avail another loan with double the limit based on literally no credit history or empirical background checks. For extending consumer loans banks relied heavily on one private sector credit bureau which provided only negative credit information on borrowers.

However, now things have changed, since the SBP Electronic Credit Information Bureau (eCIB) was established few years back when it was felt that a large number of individuals had been over leveraged and with changes in the regulatory framework for consumer banking, financial institutions are now better equipped to prudently underwrite consumer credit by optimizing risk.

Although consumer financing helped in improving peoples' standards of living, with a slowdown in the economy due to chronic energy shortages, high fuel prices, reduced exports, rising inflation and global economic shrinkage, it became increasingly difficult for people to furnish the repayment of these loans. All these factors resulted in increased NPLs, which in turn forced banks to reduce the solicitation of consumer loans in the market. This scenario was further fuelled by the rising interest rates in FY08 making it even more difficult for the public to furnish the repayment of loans with floating or annually adjustable rates.

Case in point is the mortgage market, which has been unable to pick up due to higher financing costs, although considering the great demand of quality housing, mortgages as a business would develop further if it is priced properly.

PAGE: Do you think that high interest rates in Pakistan have succeeded in containing rate of inflation?

ATIF: The interest rates in Pakistan have been kept high with the aim of containing inflation and attracting foreign investment, but these objectives haven't been achieved so far and as they say the jury is still out. Instead, the higher interest rate has increased the cost of production for industries, adversely affecting their margins and forcing them to undertake cost cutting measures which include pay cuts and layoffs.

Simultaneously, the weakening rupee and the increased cost of goods have sent the inflation rate spiraling upwards even further. I am optimistic about the future economic outlook, with the signs of recovery appearing in the developed world things are bound to improve in the medium term.

PAGE: What are the major reasons behind rising non-performing loans and its impact on profitability of the banking sector? Where does JSBL stand in this back drop?

ATIF: As I mentioned earlier, loans were granted to people on the basis of very relaxed risk assessments and by over leveraging a limited segment. While this growth in consumer financing helped in improving standard of living of the people, the economic slowdown brought on by chronic energy shortages, rising fuel prices, falling exports, increasing inflation and shrinking global economies made it effectively difficult for people to furnish the repayment of these loans, resulting in increased NPLs.

JS bank due to its limited presence in consumer business at the time was not affected by the bad debt wave that hit majority of the banks with large consumer portfolios. That is mainly why we are carefully and systematically treading towards progress by growing our footprint in untapped markets and by establishing better service delivery standards. This is coupled with broadening of our customer base to build a bank on the pillars of stability which can sustain the kind of economic shocks that other banks have struggled to cope with.