Daily Times

KARACHI: Bank Alfalah Limited (BAFL), one of the profitable and successful banks of Pakistan’s banking industry, has been successfully able to involve various foreign investors since its inception to privatisation.

In a programme Live Wire in Focus-Privatisation Series, economic experts, industrialists and bankers discussed the ups and downs of BAFL from its privatisation and shares sell-off.

The roots of the bank could be traced from the world’s seventh largest banking company, Bank of Credit and Commercial International (BCCI)-an institution owned and run by renowned Muslim banker Agha Hassan Abdi at par with the banks of international repute, thus successfully maintaining confidence of investors and depositors.

BCCI was shutdown by the authorities of UK and USA because of fear of competition with their banks having global operation, hence its 400 branches worldwide were shut on July 5, 1991 in 72 countries including Pakistan and thousands of employees had become unemployed.

Establishment of BAFL: The bank’s operation was acquired by the State Bank of Pakistan (SBP) and later it was established as Habib Commercial Exchange Limited and it was privatised later in 1996 and 1997 to UAE’s investors, Dhabi Group, through transactions of 70% shares.

There were two parties involved in the bidding process; one was Dhabi Group, which bought 70% of the bank’s share at Rs 620 million. Besides, 10% of shares were transferred to employees and rest of the shares was e floated at the stock exchanges of Pakistan.

The element of corruption was reduced substantially before privatisation of the bank as different banks were being operated as nationalised banks, said an economist S M Arif.

He said unlike different banks such as Allied Bank Limited, MCB Bank and United Bank Limited, the name of Habib Commercial Exchange Limited had been changed to Bank Alfalah.

The closure of BCCI and its transactions was done through Habib but it was renamed with new identity, which represented its association with investors based in the UAE, he added.

Due to the government misusing the banks in loan disbursement besides appointment of board of directors and staff members on political basis, the process of privatisation was opted by Bank Alfalah Limited, said Muzzamil Aslam, another economist.

Post-privatisation: BAFL was surrounded by rumours of default, credit crunch was witnessed and many foreign banks in Pakistan announced to wrap up their operations due to austerity measures.

The profit of Bank Alfalah witnessed substantial decline and it faced difficult times to operate its subsidiary in telecom sector, including Warid Tel and Wateen.

Tough Scenario: 1n 1997, a year after privatisation, the bank witnessed 16% drop in earnings. In 2009, Bank Alfalah witnessed decline in deposits from Rs 300 billion to Rs 272 billion soon after the 16% strategic share of its sister organisation Warid Tel were sold out to SingTel.

The bank was part of the controversy as it was imposed a fine of Rs 50 million by Competition Commission of Pakistan for charging undue ATM fees from customers.

However, the bank’s management has somehow managed to sustain its operation with profitability and made the banking company attractive for foreign investors such as World Bank’s International Finance Corporation (IFC).

Excelerate Private Limited CEO Zafar Aziz Usmani said the bank witnessed technological advancement and innovation in the production, wining back the customers’ confidence, which is a base to succeed in the banking industry.

It was due to this fact that bank’s board of directors were independent and quick to take decision over the expansion of branches and investment on technological tools such as ATMs, he added.

The bank’s customers’ base increased to 10 million whereas its deposits also continued to enhance. Bank Aflalah acquired Shamil Bank at $17 million and improved its global presence, mainly in Bahrain, to operate its banking business in the Gulf region.

IFC shares at Bank Alfalah: IFC subscribed with 15% shares to BAFL at $67 million, which showed the financial soundness of the bank as the global investment company found it lucrative to pour in its capital.

The investment of IFC was a good omen to the bank because it reflected that the bank offers handsome returns to investor against its business in Pakistan, said Muzzamil Aslam, adding that Pakistan’s banking industry is lucrative for foreign investors due to handsome margins as against different countries with larger banks. “The investment in the bank is not productive in terms of money rather it could have been done through change of management and subsequently transfer in technology and best banking practices,” he added.

BAFL is currently active in branchless banking, which means it is attracting low cost deposits with wide network available to tap in the unbanked market. The bank’s role in Islamic banking is vibrant whereas it collaboration with UnionPay is also significant and unique in the banking industry of Pakistan.