Daily Times

KARACHI: Strict regulatory regime has helped Pakistan’s banking industry to survive in unfavorable conditions despite local and international challenges, said Silk Bank President and CEO Azmat Tareen during an exclusive interview with Daily Times.

The veteran banker said for the interest regime, banks would be forced to look out for other investment avenues also, besides traditional reliance on the government securities, treasury bills etc.

In current scenario of subdued inflation, the discount rate has also reached a historical low, which has impacted the profitability of the banks, Tareen said, adding that 8-9 years ago banking was very easy as banks used to take deposits and invest in treasury papers and earn without taking any risk while banks’ administration/intermediation cost was around three percent. “If you see the current balance sheets of big banks, you will find out that they have invested 65 to 70 percent of their funds in treasury bills and other government securities, leaving less funds for private sector,” Tareen noted. To a question about investing in other sectors apart from government securities, Azmat Tareen replied that the practice of relying on government securities has dented national economy, as people in private sector do not get credit. “Credit is not available to commoners to buy house, start new business or extend business. It is simple, you take money from depositors and invest in treasury bills but that scenario has changed a lot and banks are forced to give out loans in the market,” Tareen observed. “We have given 70 percent credit to individuals and companies in private sectors and do not invest in stocks. Days of investing in risk free treasury bills and enjoying returns have passed and it is time that the banks should look into other segments of the economy. Soon other banks will be forced to follow our footsteps in this direction,” he claimed.

The Silk Bank CEO said now almost everybody is jumping into consumer banking and are giving loans. “If the government abstains from printing notes, then the inflation will remain subdued. So far oil price and SBP policies have helped. Banks will be forced to extend loans to small and medium enterprises (SMEs) and individual consumers. In this way the whole economy will benefit,” he added.

In reply to a question about the performance of banking sector, he said, “As far as the banking industry’s performance is concerned, it has traditionally performed well. The regulatory environment and supervision of State Bank of Pakistan is very strong due to which interest of banks and depositors has been fully protected,” adding that whenever they are in trouble, SBP intervenes to salvage them. He said banks around the world have lost their money but not in Pakistan.

About the performance of Silk bank, the CEO said that the bank has increased its investment from $260 million to $430 million, adding that profit before tax has jumped up to Rs 550 million while profit after tax is around Rs 450 million. “The bank has Rs 10 to 12 billion worth of property which was pledged against loans out of which around Rs 6 billion worth of property has been sold out. We are making the silk bank full menu bank according to the contemporary requirements of customers. This year we will hopefully earn around Rs 1 billion and next year the amount would be much more,” he vowed. About the departure of many international banks from Pakistan, Tareen opined that foreign banks left their business from Pakistan because of law and order situation. “The situation due to military operation Zarb-e-azab is now improving and it is hoped that they will comeback as huge potential exists in Pakistan. Besides, regulation has been made more prudent in order to protect both customers and the institutions,” he added.

Reply to a question about the implementation of latest technology, he said, “We are focusing on technology. All banks are now online, and mobile banking growth is rampant. Now you can transfer funds from one account to another and from one bank to another bank without visiting bank branches,” he added.

About consumer banking, he said that this kind of banking was feasible in early 2000s when interest rates were on the lower side, but the rates increased to around 15 percent and it became unfeasible. “Now the rates are on the lower side again and it makes sense to restart consumer banking. With the introduction of foreclosure laws, it would be easy for banks to extend loans to commoners as against the previous practice. Now a common man will be able to own a house rather than living his entire life on rent. If the regulatory regime will be better, then there will be no defaults,” he added.