Dec 21 - 27, 2009

Munir Saleem is one of the most distinguished names in the country's banking industry. He is considered as one of the top bankers in the country with vast banking experience of serving as branch manager, regional head, general manager, group coordinator, business head and group head commercial banking. He has also served country's premier bank MCB till June this year.

Presently, Munir Saleem is working as group executive commercial banking in KASB Bank, supervising branch banking, SME, and agriculture divisions.

During an interview with Pakistan Gulf Economist, he shared his views about wide-ranging affecting Pakistan's banking sector. He also shared his vision about how he would lead the KASB Bank to new heights.

Munir Saleem said that KASB Bank has been realigned according to the best industry practices keeping in view the customer centric approach wherein fulfillment of the needs of the customers is the top priority.

"The bank has a good customer base with a diverse range of liability, assets, and trade products. The competitive advantage of KASB is its best quality service and cutting edge technology."

He said the bank branch network has been expanded to 100 branches and 25 new branches are under the process of approval for 2010. "We are focusing on branchless banking too which will further enhance our presence across the country."

Talking about the KASB Group, Munir Saleem said it was established by Khadim Ali Shah Bukhari in 1958 and the group had a long-standing tradition of excellence in financial services in Pakistan, known primarily for investment banking, research/trading and assets management.

'Over the past 50 years, our organic growth into commercial banking, assets management and investment banking has established KASB as the leader in Pakistan's financial services sector and it's the only wealth management group in the country.'

The group comprises of KASB Securities, KASB Funds, KASB Direct and KASB Bank, added in 2002, and recently KASB Modarba has entered to complete group's financial services' portfolio.

The group has also diversified its area of operations with investments in real estate, technology, and oil and gas while solidifying its leadership in financial services.

"Continued success and growth are evidences of our innovative approach to business and commitment to customers and community," he said.

'In recognition of group's vision, growth, and standing in the domestic market, Merrill Lynch, one of the world's largest investment banks, joined hands with KASB for exploring research and investment banking opportunities, allowing us to leverage a global network of 56,000 professionals and one of the world's largest distribution networks of corporate investors for our clients.'

This technical affiliation of the KASB/Merrill Lynch has attracted foreign capital in to Pakistan through strategic & portfolio investments, debt and equity capital issuance.

Additionally, KASB and Merrill Lynch have jointly published research, sponsored international road shows and investor conferences, besides executing international corporate finance transactions for private and public sectors of Pakistan, said he.

He said that the ongoing consolidation has a favorable impact on the banking sector since this consolidation has not been done to defend against competition.

Presently, merger and acquisition (M&A) transactions are largely taken by small and medium sized financial institutions. Such M&A has not only strengthened the capital base of banking system but also helped to improve competition by reducing the concentration, he added.

"Banking system is now enjoying healthy capital base and greater resilience. Various concentrations indicate growing competition in the banking sector. Specifically, the share of big five banks has declined from 63% in year 2000 to 54% in 2008. The share of second tier big five banks has increased from 13% in 2000 to 22% in 2008. The share of third tier five banks has also increased from 8% to 12% in the same period."

About non-performing loans (NPLs), Munir Saleem said, "It is a matter of serious concern when the amount of non-performing loans is rising once again, touching a record level of Rs 322 billion in September, 2009, which is higher by Rs 126 billion or 56 percent over the gross NPLs of Rs 206 billion in the same month last year. This was despite the fact that growth of the private sector credit, during this period, was almost stagnant."

According to him, gross NPLs to gross advances, another important ratio to gauge the level of NPLs, also increased 10.77 percent in September, 2009 as compared to 10.05 percent in June, 2009 and 7.1 percent in September, 2008.

An increase of about 3.7 percentage points in this ratio in only a year's time is significant and indeed worrying. A sharp deterioration in the quality of banks' assets in such a short period could largely be attributable to the slump in business activity in the country.

When asked whether NPLs pose a significant risk to the banking sector, he said, "For any banking system the key risk is the credit risk and the same is true for Pakistan."

"Since 2008 the credit risk of banking system has increased. However, it is still manageable." As you know that credit flow is a function of economic performance, he said.

Slowdown in economic activity stopped the GDP growth for FY09 at 2% and is estimated to grow by 3.3% in FY10. The demand for credit from various sectors and particularly from private sector has reduced significantly.

This low level of economic activity is affecting the performance of the businesses and hence their repayment capacity. However, since the banking system is profitable it has generated profit before tax of Rs 47.7 billion for the first half of the year 2009 and also the solvency of the system is continuously improving. CAR has increased to 13.5% in June 2009 from 12.3% in December, 2008. The banking system can absorb the effects of this increasing credit risk.

According to him, NPLs accumulation rate has slowed down substantially as evident from 3Q09 results. However, the sector might not be out of the woods just yet and could see the tail end of credit cycle unfolding in the near future before NPLs hit its peak.

About Islamic banking, Munir Saleem said, "Islamic banking in Pakistan has made commendable progress in the last few years and has a great potential to grow even faster. Market share of Islamic banking assets has increased from 0.5 % in 2003 (the first Islamic bank started its operation in 2002) to 5.1% in June 2009 (within six years only)."

He said the number of branches had grown from 289 in 2007 to 515 in 2008, which are around 530 in June 2009-six Islamic banks with 312 branches, 12 conventional banks with 138 Islamic branches and 78 Islamic windows, bringing the total to 528 by June 2009 with presence in over 50 cities & towns and covering all the four provinces of the country and AJK.

Munir Saleem said the future of Islamic banking in Pakistan is bright for growth. The major driver of this growth is the untapped demand of the belief sensitive customers.

Banks and SBP are working in cooperation to develop Islamic banking as the banking of first choice and to achieve the overarching objective of equitable economic growth. For this, we are also proactively collaborating for developing domestic and global Islamic finance industry with international bodies such as Islamic Financial Services Board (IFSB), International Islamic Financial Market (IIFM) & Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and also some central banks, he said.

About future of Pakistan's banking industry, Munir Saleem said, "Our banking sector constitutes the core of financial sector in Pakistan. It has witnessed significant growth in recent years and continues to have an enormous growth potential. In recent years, a wide range of important structural reforms have already taken place but more reforms are needed for the banking sector to grow into its full potential for supporting strong and sustained economic growth and development."

The following are some of the important future reforms by the central bank:

- To implement a financial inclusion program for banks to meet the needs of underserved economic sub sectors, including outreach programs to meet the requirements of the needy sectors and population.

- To strengthen consumer protection through new legislation, codes of conduct and new institutional arrangements, and improved financial education through educational outreach programs.

- To introduce a framework for consolidated supervision and reorganize the regulatory architecture to allow better regulation and supervision of financial groups and conglomerates.

- To provide a strong legal reform through reformulation of: a) banking Act, b) amendment for consolidated supervision, c) deposit protection fund Act, and d) SBP Act.

Other reforms include (a) to promote competition and efficiency in the banking sector, (b) to develop a financial safety net for protection of small depositors, (c) to deepen financial intermediation and (d) to develop the financial infrastructure, especially payment systems, as well as human resources, credit information, credit ratings, land and property registries and minimize procedural delays in the legal system to improve the efficiency of financial sector transactions.

Munir Saleem further said that 21st century poses internal and external challenges for the Pakistani banking industry. Internal challenges have profound impact on the long run robustness of the banking industry. External challenges require fast adaptability to changing environment.

He said that acquiring the technical expertise should be the focus of human resources in view of the changing banking sector's regulations.