Consumer banking in Pakistan

Consumer Behavior
Program: MBA (Evening)
Submitted To:
Sir Abdul Qayyum Qureshi
Submitted By:
Muhammad Tayyab
Roll # 111405
Pak-AIMS (Institute of Management Science
Consumer Banking in
Pakistan

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Consumer Banking in Pakistan (Consumer Behavior)
Introduction:
In Pakistan all banks & DFI‘s works under the supervision of the State Bank of Pakistan, the four
major sectors in which SBP has divided banks operations are Corporate, SME, Agriculture and
Consumer. SBP provide regulations according to which all banks should work & continuously keep
a track that banks are complying through the regulations or not.
In recent years, Consumer Banking has made tremendous progress and has played a positive role in
boosting the economy and in meeting the needs and requirements of the consumers. Whether large
or small bank, multinational or local, each one of them is geared towards making its mark in an
already competitive environment that is the outcome of consumer banking. The growing economy
and further improvements in the level of household income have created many opportunities for
consumer banking.
History of Banking in Pakistan:
Banks in Pakistan also exhibiting symptoms of similar financial malaise caused by extensive
liberalization, as are their counterparts in the West? Not quite. Pakistan‘s experience with financial
liberalization in the banking sector is vastly limited as compared to the developed world. A brief
look at the history of banking in Pakistan reveals that the banking sector has made impressive
achievements but still has a long way to go.
Humble beginnings, 1947 – 1970
Our financial sector evolved very differently from banks in the developed world. For nearly a year
after partition, Pakistan had no central bank. Habib Bank – established in 1941 – filled this gap
initially, until the State Bank of Pakistan (SBP) was set up in 1948 under quasi-government
ownership. The role of domestic banks was particularly limited at the time, accounting for only 25
of the total 195 bank branches in the country. Therefore, the SBP was initially mandated to develop
commercial banking channels, and maintain monetary stability so trade and commerce could
flourish in the newly-created state. Subsequently, Habib Bank, Allied Bank and National Bank were
amongst the first to start operations with strong support from the central bank.
A legacy of public control, 1970 – 1980
Commercial banking grew favorably in Pakistan until 1974. Under the nationalization policy
implemented by Zulfikar Ali Bhutto‘s government, thirteen banks were brought under full
government control, and consolidated into six nationalized banks. The Pakistan Banking Council
was set up to monitor nationalized banks, marginalizing the SBP‘s role as a regulator. These
measures were meant to improve lending to prioritized industries. However, while directed lending
was viewed favorably at the time, little can be said of the long-term gains that have been achieved.
Business as usual, 1980-1990
Over time, the financial sector grew to serve primarily large corporate business, politicians and the
government. Board of Directors and CEOs were not independently appointed. Lending decisions
were not always commercially motivated, and many billions of rupees were unsurprisingly funneled
out of the financial system as ―bad loans‖. Banks were essentially not in control of their destinies
during this period.

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Privatization, 1990 – 1997
By 1991, the Bank Nationalization Act was amended, and 23 banks were established – of which ten
were domestically licensed. Muslim Commercial Bank was privatized in 1991 and the majority
ownership of Allied Bank was transferred to its management by 1993. By 1997, there were still four
major state-owned banks, but they now faced competition from 21 domestic banks and 27 foreign
banks. More importantly, administered interest rates were streamlined, bank-wise credit ceilings
removed and a system of auctioning government securities was established, forcing the government
to borrow at market determined rates.
Ushering in the reforms, 1997 – 2006
After privatization, transformational reforms were pushed through. The central bank‘s regulatory
powers were restored via amendments to the Banking Companies Ordinance (1962) and the State
Bank of Pakistan Act (1956). Subsequently, corporate governance, internal controls and bank
supervision was strengthened substantially. Legal impediments and delays in recovery of bad loans
were streamlined in 2001. Furthermore, the scope of prudential framework set up in 1989 was
enhanced, allowing banks to venture into hitherto untapped business segments. Lending to small
and medium enterprise had previously been neglected, whereas consumer and mortgage finance had
not developed prior to reforms.
The post-reform era, 2006 – present
Buoyed by the spirit of liberalization, the sector‘s landscape has changed significantly. By 2010,
there were five public commercial banks,25 domestic private banks, six foreign banks and four
specialized banks. There are now 9,348 bank branches spread throughout the country, catering to
the needs of some 28 million deposit account-holders.
Banking in Pakistan – the long journey ahead
Much still remains to be accomplished. In the absence of sustainable economic growth, banks will
remain vulnerable to business cycle fluctuations. As recently as 2008, non-performing loans
increased sharply in response to the preceding years of easy credit and risky consumer lending
practices.
Moreover, strong regulation will continue to be required so as to maintain the delicate balance
between industry concentration and competition. Presently, the top five banks account for about
50% of the sector, measured in terms of total advances.
Finally, the benefits of financial liberalization must trickle down to the common man. Banks are
proactively exploring new business models to make this happen – such as branchless banking. But
more headway needs to be made before existing deployments – such as Tameer Bank‘s Easypaisa
or UBL Omni – reach a critical mass of users.
Reforms have helped banks come a long way, but unless the central bank remains autonomous, and
continues to err on the side of caution, liberalization may quickly become a bitter pill to swallow.

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Consumer Banking in Pakistan
Consumer banking which is one of the fastest growing sectors of Pakistan Banking Industry is also now
major interest point for the banks. Initially the consumer banking sector was only focused by the foreign
banks but its efficiency & profitability attracted others to come towards this business but still the major share
of consumer banking in Pakistan is in the hands of foreign banks.
In a generic sense, institutional arrangements that provide consumers with financing support to enhance their
consumption and as a result thereof, improve their standards of living should fall within the broad definition
of consumer finance. For the past 50 years commercial banks in Pakistan had completely ignored consumer
financing as an activity.
Consumer banking is a huge industry with great profits massive potential for improving economic
conditions. But the banking sector has to care more for its subscribers rather than solely about itself. It needs
to offer itself. It needs to offer better services at better terms and needs to inform the consumer completely
and fully about the services.
According to an analysis, credit cards loans have increased from Rs33.538 billion during first of last calendar
year to Rs42.822 billion during first half of current calendar year. Likewise, personal loans have increased
from Rs120.517 billion in H1CY06 to Rs142.373 billion in H1 CY07. Growth in auto loans has not been less
impressive. It registered an increase of approximately Rs8.0 billion from RS97.777 billion to Rs105.444
billion during the corresponding period of growth of credit cards and personal loans. Housing loans have also
registered an increase of approximately Rs11.0 billion in H1 CY 07 from Rs43.205 billion in H1 CY06.
(Sharif, 2007)
Exposure per borrower
Rupees in 000 2004 2005 2006
Credit Cards 23 26 32
Auto Loans 423 430 411
Consumer Durable 37 29 22
Mortgage Loans 1572 1982 2025
Other Personal
Loans
82 89 100
(SBP, 2006)
Figure 2.1

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Consumer Financing Share by Sector(SBP, 2006) Amount of Consumer Financing (SBP,
2006)Figure 2.2
Figure 2.3
NPL Ratio of Consumer Financing (SBP, 2006)
Auto Loans
In Pakistan auto loans are purchase of brand new or used, imported or local cars for private use.
Auto financing and auto leasing both facilities are offered by most of the banks. Salaried
Persons/Self Employed Professionals / Business Persons who meet the terms and conditions to
qualify for the finance are eligible for the loan. Some banks are also offering both variable rate &
fixed rate options for auto loans. The average market rate for auto loans is 14-16%.
Home Loans
The loans taken for Buying, Building or Renovating of house/land are classified as home loans. For
home loans both variable rate & fixed rate options are also available. The maximum duration
offered by banks for home loans is generally twenty years that‘s why banks conveniently give loans
to permanent employees of any firm to ensure strong repayment ability.
Personal Loans

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Personal Loans are generally unsecured type of loans but in certain cases when the amount of
personal loans increases the normal limit its remaining portion must be secured. Personal loans
include loans for the purpose of education, marriage, purchase of consumer durables, furnishing,
traveling, etc. Generally the limit for personal loans is maximum Rs.500, 000/-
Credit-Debit Cards
Credit Cards mean cards which allow a customer to make payments on credit. Supplementary credit
cards are considered part of the principal credit card. Initially only foreign banks are offering credit
cards in Pakistan but now many local banks is also offering credit card facility. Credit Card is
covered by three networks VISA, Master Card & American Express.
Debit cards are issued to account holders of any bank in Pakistan almost all the banks are offering
debit card facility the amount used by the debit card holder is directly debited from the account of
the card holder. Debit cards are accepted at all ORIX Network in Pakistan and it can also be used as
ATM cards which are covered by 1-Link & MNET network in Pakistan.
Deposit Accounts
All the commercial banks are offering different kinds of deposit accounts these account ranges from
customer to customer to fill the need of every type of customer. Few of the accounts provide high
interest while some pay low interest & some don‘t pay any interest. Some major categories of
deposit accounts are;
Current Accounts
Saving Accounts
Foreign Currency Accounts
Business Accounts
Term Deposits Accounts
Wealth Management
Wealth management is a new kind of service introduced in consumer banking sector now days. It
covers all aspects of securing future of bank‘s customers it includes insurance, tax advisory,
financial consultancy, investments plans, etc. Yet wealth management service are mainly covered
by few foreign banks only this is a new service are even bank‘s customers don‘t have any idea about
Wealth Management Service. Almost all the banks are offering insurance services to some of their
customers but the concept of wealth management is not behind it.
E-banking
To facilitate its customers all banks local & foreign are offering high technological e-banking
services. These services let the banks customers to perform many banking activities easily without
any restriction of time & place. Some of the major e-banking services provided by the banks are;
Phone banking
Internet banking
Plastic Cards
Online banking

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Mobile banking
ATM
Pakistan Banks’ Association (PBA)
Pakistan Banks‘ Association (PBA) represents the Pakistan Banking Industry. Established in 1953,
its main objective is to coordinate the efforts of the banking industry, and to share a common vision
of progress and development with its members.
PBA Membership is institutionalized and is available only to the Banks operating in Pakistan.
Currently there are 44 members, categorized into 6 groups (one of these groups is under formation).
Its governing body is an Executive Committee (EC) comprising of 14 members, represented by the
Chief Executives of the respective member institutions. PBA‘s Principal Executive is the Chairman
of the Executive Committee, elected periodically from within the EC. Presently, PBA has 10
functional Sub Committees, each chaired by a member of the Executive Committee. Remaining
members of the Sub Committees are relevant Executives of member banks. Find more about PBA
and it‘s governance in the PBA Profile Section. Particulars of members such as their corporate and
management profiles, branch networks and financial statements are available in the PBA Members
Section.
Over the years the role of PBA has broadened considerably. It is now referred to by the State Bank
of Pakistan in formulation of regulations for the banking industry, and has been entrusted with the
function of regulating and monitoring certain services provided to the banking industry by outside
service providers. These service providers include ‗Professional Valuers‘, who are evaluators
allowed to appraise the values of assets collateralized to banks, and Security Agencies offering
security services to the Banking Industry. For details visit the PBA Panels Section.
Following financial institutions are the members of Pakistan Banks' Association.
Government Owned Banks:
First Women Bank Limited
Khushhali Bank Limited
National Bank of Pakistan
SME Bank Limited
Sindh Bank Limited
The Bank of Khyber
The Bank of Punjab
The Punjab Provincial Cooperative Bank Limited
Zarai Taraqiati Bank Limited
Privatized Banks:
Allied Bank Limited
Habib Bank Limited

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MCB Bank Limited
United Bank Limited
Development Financial Institutions:
National Investment Trust Limited
Pak Brunei Investment Company Limited
PAIR Investment Company Limited
Pakistan Kuwait Investment Company (Pvt.) Limited
Pak Libya Holding Company (Pvt.) Limited
Pak Oman Investment Company Limited
Saudi Pak Industrial & Agricultural Investment Company Limited
Small and Medium Enterprise (PBA subgroup under formation):
The First MicroFinanceBank Limited
Private Banks:
Al Baraka Bank (Pakistan) Limited
Askari Bank Limited
Bank Alfalah Limited
Bank AL Habib Limited
BankIslami Pakistan Limited
Burj Bank Limited
Dubai Islamic Bank Pakistan Limited
Faysal Bank Limited
Habib Metropolitan Bank Limited
JS Bank Limited
KASB Bank Limited
Meezan Bank Limited
NIB Bank Limited
Samba Bank Limited
Silkbank Limited
Soneri Bank Limited
Standard Chartered Bank (Pakistan) Limited
Summit Bank Limited (Formerly Arif Habib Bank Limited)
Foreign Banks:
Barclays Bank PLC, Pakistan
Citibank N.A., Pakistan
Deutsche Bank AG, Pakistan
HSBC Bank Middle East Limited, Pakistan

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HSBC Bank Oman S.A.O.G. (Formerly Oman International Bank S.A.O.G.)
Non-Member Banks & Development Financial Institutions:
APNA Micro Finance Bank Limited (Formerly Network Micro Finance Bank
Limited)
Bank of Tokyo Mitsubishi UFJ Limited, Pakistan
House Building Finance Company Limited
Industrial and Commercial Bank of China Limited
Industrial Development Bank Limited
KASHF Microfinance Bank Limited
NRSP Microfinance Bank Limited
Pak-China Investment Company Limited
Pak Oman Microfinance Bank Limited
Tameer Micro Finance Bank Limited
U Microfinance Bank Limited (Formerly Rozgar Microfinance bank Limited)
Waseela Microfinance Bank Limited
Contribution Consumer Banking in Economic Development
In Pakistan, consumer finance despite rapid growth during initial period of 2-3 years has
started declining. During past few years the domestic consumer finance emerged as one of the key
factors to boost economic growth despite its comparatively low share of 14 per cent in the total
private sector credit compared to its share in other countries like India and Indonesia where it stands
at 24 per cent and 30 per cent respectively.
Regional and global markets and economic players have become highly competitive and banking
sector is more concerned to safeguard its capital and enrich itself with higher returns on loans than
government‘s concern about boosting economic growth.
Consumer Financing & Economic Growth:
Lending through credit cards, personal loans, auto loans, loans for durables and housing
finance emerged main streams of consumer finance. They shaped domestic demand and lending
strategy by the banking sector in quite subtle ways. Consumer finance has also brought social
change through higher circular of money and relaxation of income constraints for borrowing
particularly among those middle class segments that were eager to become part of growing
economy and keen to benefit from economic growth. Without consumer finance being in the driving
seat of the banking sector, a large number of people would not have benefited.

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Lending through credit cards, personal loans, auto loans, loans for durables and housing finance
emerged main streams of consumer finance. They shaped domestic demand and lending strategy by
the banking sector in quite subtle ways. Consumer finance has also brought social change through
higher circular of money and relaxation of income constraints for borrowing particularly among
those middle class segments that were eager to become part of growing economy and keen to
benefit from economic growth.
Significance impact on Consumer:
In a generic sense, institutional arrangements that provide consumers with financing support to
enhance their consumption and, as a result thereof, improve their standards of living, should fall
within the broad definition of Consumer Finance. These could range from Credit Cards, to finance
and operating leases, to housing finance. But the semantics of financial markets generally tend to
exclude housing finance from this range treating it as a distinct financing product essentially
because of its long-term nature.
For the past fifty-four years, commercial banks in Pakistan had completely ignored consumer
financing as an activity. There was scant realization of the fact that the hallmark of healthy
economies is not unrealistically high dependence on exports but on domestic demand, and
development of indigenous resource and industrial bases that support domestic consumption. Until
the early l990s, even Credit Cards were offered to a select band of customers who needed them not
by way of financial support but as a convenience for paying their bills while travelling abroad,
realizing little that in developed economies this mode of financing supported consumption to sustain
steady growth in domestic demand which, in turn, prompted investment and industrialization. Even
now, the sudden urge for promoting consumer finance has less to do with accepting this reality; it
was spurred largely by a depressed investment climate in which reduced borrowing by industrial
and commercial sectors coincided with excess liquidity in banks, thanks to 9/11. Lumbered with
liquidity that is nearing unmanageable proportions, banks are now aggressively promoting
consumer financing.
The big attraction in extending financing facilities to the passive consumer segment is the prospect
of earning high interest rate spreads because consumers are soft targets as far as haggling over
interest rates chargeable to them are concerned. They are much more likely to borrow at
unrealistically high rates — a convenience that is no longer available on lending to industrial and
commercial borrowers who now insist on the finest possible loan rates. But in pricing consumer
loans unrealistically high, banks would be making a serious mistake because "they cannot charge a
high enough loan rate that could compensate for the loss arising out of an irrecoverable loan." More
importantly, if consumer finance has to pick-up as a truly helpful mechanism for spurring domestic
demand, it must be ensured that it remains within the consumers' capacity to repay their loans on
time, and they feel confident about borrowing again and again.
As its is, ordinary consumers' capacity to borrow and repay loans out of their savings has been
rendered precarious by decades long cycle of inept economic policies that have made the poor even

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poorer. Low rise in per capita incomes (whose impact was compounded by falling purchasing
power due to rapid depreciation of the Rupee) caused savings to fall and poverty to rise. This
combination steadily depressed consumer demand even for the less expensive consumer durables.
The sustained trend of depressed demand prevented the development of a sizeable industrial base
and contraction in opportunities for investment and employment. In the last two years, steady
reductions in returns on savings have further diminished consumers' capacity to repay bank loans.
Banks are belatedly trying to redress this enormous macroeconomic structural imbalance but given
the historic pattem of economic developments, they will be handicapped in their efforts to promote
consumer finance. Signs are that while lower interest rates have certainly enhanced borrowers'
capacity to borrow and service consumer loans, the newly created demand is pushing prices of
consumer durables to unrealistic levels. Take, for example, automobiles. Strengthening of the Rupee
and substantially lower interest rates should have brought their prices down or at least served to
stabilize them. Neither of these expectations were met because the sudden rise in demand created a
distortion that allowed assemblers not only to push up prices but also created a roaring black market
in this sector. With banks now offering liberal consumer finance facilities for acquiring home
appliances, their prices too are on the rise although there is substantial over-capacity in this sector.
Many observers argue that this distortion is a temporary phase, which will soon become history as
production capacities increase to fill the large supply gap. May be so, but going by the example set
by the automobile industry (in which, so far, only one assembler has announced a "plan" to double
its output) this lag may not be as temporary as some observers make it out to be. Banks providing
cheap credit to business and industry at the expense of the savers can exercise a powerful influence
on the manufacturing sector to push the case for compensating the savers through lower prices.
Unfortunately, however, lack of social responsibility in the corporate sector is too pervasive to bring
home this realization to the market players.
Aside from the macroeconomic distortions that suppress consumer demand, there are other delicate
issues that require focused attention of commercial banks intending to launch a major thrust in
consumer finance. The first is the lack of institutional arrangements and practices that hamper the
assessment of consumers' re-payment risk. Ideally, risk assessment of employed individuals should
not pose as much of a problem as the self-employed individuals because employers could help in
providing a basis for establishing the employees' re-payment capacity. That, unfortunately, is not yet
the case. Employers appear averse to taking even the feeblest responsibility on account of their
employees.
Many employers either don't certify, or certify very inadequately, the financial status of their
employees intending to avail a consumer finance facility from a bank. Unless provisions are made
in relevant labour laws, employers will not provide even this information about their employees,
which they should morally feel bound to provide. Fewer among them are prepared to confirm to the
financing institution that they have placed on their records the fact that their employee has availed a
financing facility. Fewer still are prepared to accept the responsibility of informing the financing
institution in the event the finance-availing employee leaves the employer, or is asked by the
employer to leave.

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In the case of the self-employed, the problems are complicated further because many potential
consumers do not keep credible records of the streams of earnings from their vocations or
businesses to permit financing banks a reliable assessment of their future re-payment capacity.
Many consumers don't have utility service connections in their names. Given these handicaps,
credibly verifying consumers' repayment sources will remain a stumbling block. Unless insurance
companies lend a helping hand in this effort by providing loan re-payment guarantees to the lending
banks, the prospects of expanding the consumer finance market remain dim. Bankers will have to
rely largely on their own credit judgment, which may not always be correct. Given Pakistani
bankers' track record in lending, such a possibility will always be there.
A factor that will further complicate extending consumer finance facilities along sound lines are the
continuing inadequacies of our legal system that make it cumbersome for borrowers to collateralise
their existing unencumbered assets for the satisfaction of the lending bankers. Another thorny issue
is the re-possession of financed assets. While re-possessing vehicles doesn't pose too serious
problem, re-possessing assets such as air-conditioners, refrigerators, televisions sets, and similar
other appliances from households will not be easy. It could be both painful and embarrassing for the
lending institutions. Even if these items could be re-possessed, re-selling them to recover book
values of outstanding consumer liabilities holds out a challenging prospect. Resorting to shortcuts in
risk assessment may therefore lumber banks with thousands of small delinquent loans. In most
cases, it may eventually be cheaper to write them off rather than go for re-possession and sale of
used assets, or initiate court action to recover loans from defaulting consumers.
Consumer finance is a risky ball game. The infamous yellow cabs scheme was the only big
experiment in consumer finance, which was undoubtedly a bad experience for most banks that took
part in it. Admittedly, political twists played a big role in the failure of the scheme but operational
inadequacies of banks played a bigger role in this monumental failure. A major factor in that failure
was the operational deficiencies in banks, particularly in assessing an individual's future repayment
capacity keeping in view his or her changing circumstances. Foreseeing impending changes in the
circumstances of individuals is not the same as sensing the impact of changing business cycles on
major borrowers placed in various economic sectors. Little is available in terms of authentic
statistics on this huge customer category. Pakistan Integrated Household Survey (PIHS) is a new
report, and its timely release cannot be assured because it may report changes in politically sensitive
indicators.
Given the absence of credible sources and bases for assessing risk, dealing with thousands of small
borrowers makes consumer finance is a manpower intensive business. Retail banks with large
branch networks have the potential for succeeding in this business but it will require making
alterations in banks' infrastructure, and a change in the focus on investigative effort for risk
assessment. The organization must be pro-active and sufficient in terms of manpower and
Management Information Systems to ensure a reaction speed that is commensurate with size of the
customer base. In this regard it will be crucially important to ensure that administrative resources
are matched with the size of customer base on a continuing basis. Until recently, oblivious to the
emerging possibility of creating a large consumer finance market, banks were closing down
branches and laying-off employees. Admittedly, there was a need for pruning the banks of
deadwood but voluntary retirement schemes led to separation of many experienced hands who

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could have been re-deployed in consumer finance units because they knew the essentials of risk
assessment. Banks will now have to inject fresh (and inexperienced) blood in their organizations to
support their consumer finance operations.
Admittedly, consumer finance spurs consumption and demand that is necessary for the industry to
expand its productive capacity or make fuller use of its existing excess capacity, and succeed in
cuffing prices at the retail level. It also offers the prospects of increasing employment and, possibly,
fresh investment in industrial sectors, especially those producing consumer durables. However, the
key to sustaining the consumption-demand equation without pushing inflation to unsustainable
levels is the maintenance of the critical balance between savings, investment and borrowers' debt-
servicing ability.
There is considerable truth in the observation that lowering of interest rates by Central Banks in the
mid-1990s, ostensibly to spur demand and economic activity, resulted in acquisition of excessive
amounts of "easy" bank credit by businesses and creation of over-capacity there from. Similarly,
households too acquired credit (far in excess of their capacity to save and repay) for investing
houses, consumer durables and company shares on visibly inflated prices. The credit boom, and the
demand created there from, led to meteoric rises in prices and deluded industry into over-investing
in capacity building. Eventually, unsustainable burden of debt-servicing forced businesses to crash,
and households ended up with negative equities.
Maintaining the critical balance between savings, investment and borrowers' debt-servicing ability
is possible if input prices remain stable affording businesses to sustain their profitability, and
interest rates too remain stable to ensure that, in the medium term, debt-servicing burden remains
affordable for both consumers and manufacturers. Unless the system can ensure the maintenance of
this delicate balance, economic instability will remain a strong possibility. Countries that tried to
achieve an over-kill in spurring domestic demand sometimes overlooked the importance of
maintaining this critical balance. We too are trying to achieve the same objective but regulators
must ensure that we don't fall in that dangerous trap. Pakistan's economy, already rendered fragile
by industrial sector loan losses, simply cannot live through another major upheaval caused by
pervasive delinquency of consumer loans.
Articles # 1
Citibank has announced that it is wrapping up its consumer banking operations in Pakistan
and has entered into an agreement with Habib Bank (HBL) to sell its credit card and
consumer lending portfolio, according to a press release. Citi Pakistan will work with HBL to
ensure a smooth handover during the transition period.
The announcement was made at a signing ceremony held in Karachi, attended by HBL and Citi
Pakistan representatives. Speaking at the occasion, HBL President and CEO Nauman Dar said,
―HBL will continue to be a key developer of consumer finance products in Pakistan. The acquisition
is part of this commitment and ties in with the bank‘s mission of creating value for stakeholders,
especially our customers.‖

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Nadeem Lodhi, Citi‘s country officer in Pakistan, said, ―Citibank was a pioneer in growing
consumer lending products in the Pakistani market and has since contributed to strengthening the
consumer banking landscape in the country. We have had the privilege to serve our clients, whose
discerning requirements and standards were met through our global banking platform. We look
forward to working with HBL, to ensure a smooth transition for our customers.‖
―Citi Pakistan will continue to focus on its core business of corporate and investment banking
serving our multinational, public sector, financial institutions and top-tier local corporate client
base,‖ Lodhi added.
Article # 2
Weak economic conditions hitting retail banking hard’
KARACHI: Pakistan‘s retail banking market is undergoing difficult times due to weak economic
conditions, bank‘s rising non-performing loans and the lack of effective foreclosure laws; however,
local financial players try to retain this market by acquiring retail or consumer lending portfolios of
the foreign banks, experts said.
The deal for the acquisition of Citibank‘s (Pakistan operations) consumer business portfolio with
the Habib Bank Limited depicts this trend. The deal is expected to be finalised by the end of this
fiscal year.
The financial experts said the acquisition of retail lending portfolios reflects the very real appetite
for profitable, high quality consumer assets in an environment where deposit growth is outpacing
lending growth, particularly in terms of consumer lending.
Despite this appetite, however, the banking sector has been unable to grow their consumer lending
portfolios through fresh exposures to new or existing clients. ―Banks participating in the retail
lending market took significant hits to their profitability during the last credit crisis and the memory
of those losses is reflected in the generally conservative underwriting policies being followed by
most banks,‖ Naseer Hasan, head of consumer banking at Standard Chartered Bank, said.
He also said that the regulatory framework for consumer lending, tightened during the last credit
crisis, further ensures that the growth in the consumer lending sector remains measured.
―The use of positive credit bureaus during the last six to seven years has excluded several
consumers from the lending market due to their past credit history and the reluctance of banks to bet
on these consumers again,‖ he said.
The legal environment in the country in recent times has not helped the banks in terms of
collections or legal actions against defaulters, he added.
He was of the view that the lower interest rates have yet to translate into lower customer rates for
consumer lending products. The banks have yet to come up with the cost models for their retail
lending operations that would allow for lower rates and more sustainable profitability.
―Big banks sell their specific segments and the practice to divest business from one geographical
area and investing in another is very common among the American and European banks due to a
number of reasons such as weak economic conditions, new regulations and capital adequacy ratio,‖
another banker at a leading commercial bank, said.
He said that after the financial crisis, several western banks preferred to concentrate on their home

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or similar markets.
Barclays, HSBC and RBS are in the process of shrinking the operations from different regions such
as the Middle East.
Citibank is divesting its consumer banking operations from Pakistan but it will remain operative in
the investment and corporate banking as per its global strategy, he said.
―There are many geographical areas where Citibank is providing corporate and investment banking
to the big deal tickets only. This is the history of Citibank.‖
―HBL credit card segment was weak and Citibank has good customer built. So, after the acquisition,
HBL will be in a better position to grab the credit market,‖ Muzzammil Aslam, a senior economist,
said.
To a question why Citibank decided to exit from Pakistan‘s consumer market, he said, in the
presence of local five big banks, foreign banks have very small opportunity to grow.
In Pakistan, third-tier banks are facing difficulties in meeting the capital adequacy requirements,
therefore, these banks are going for merger and acquisitions.
―In this particular transaction, there was no level-playing field provided by the regulator to the
interested parties. The MCB Bank was keen to acquire the consumer business of the Citibank but
the central bank granted the approval to start the process of due diligence very late. Somehow, the
regulator denied new entrants to come into the process of due diligence. It could be better if more
big players were there,‖ he added. Bank Alfalah was inclined to buy the Citibank‘s consumer
portfolio, however, later it withdrew from the race.
REFERENCES:
History : Published in The Express Tribune, November 2nd, 2011.
Shahid, A.B. (2003), ―Consumer Finance: What are its chance of Success”, Pak & Gulf Economist, viewed
27 February 2008,
State Bank of Pakistan (2006), ―Prudential Regulations for Consumer Financing”, Banking Policy and
Regulation Department, viewed 15 February 2008, http://www.sbp.org.pk/publications/prudential/index.htm.
http://www.hks.harvard.edu/m-rcbg/CSRI/publications/report_19_EO%20Finance%20Final.pdf
http://www.scribd.com/doc/118376875/Consumer-Banking-in-Pakistan#page=70
Thank you!!

Consumer banking in Pakistan

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Consumer banking in Pakistan