‘To become more meaningful, banks should increase lending to real sectors’

KARACHI: Muhamad Aurangzeb, president and chief executive officer of Habib Bank Limited talked about challenges and opportunities for the banking sector in a question and answer session.

Q: What challenges do banks encounter when operating in Pakistan?

A: There has been a steep change in the currency regime and in the policy rate. The government has taken measures to achieve macroeconomic stability.

The policy rate has increased by 500-600 basis points and the latest indication is there will be no further monetary tightening as it has peaked. So, over the next year the rate should start coming down as well.

I am very clear that the next 12-18 months are going to be challenging due to high inflation and increased exchange and interest rates. I believe over the medium term, we should come back to a situation in which the GDP growth will be back and interest rate will be normalised. Therefore, banks should be supportive for the real sector. We’ll continue to invest in market treasury bills and Pakistan Investment Bonds to support the government to buy their short-term and long-term papers but we have to stay with the real sector - it doesn’t only mean manufacturing but also agriculture and SMEs.

There is a large financially underserved population in Pakistan. We can’t increase peoples’ access to financial services only through bricks and mortar. That’s why HBL launched its branchless banking and mobile app Konnect and a network of 49,000 agents for low value payments.

We have received around 4,000 applications on the Konnect app over the last month or so; out of that 75 percent are in the age brackets of 25-35.

Technology is going to be a real driving force in the banking industry. The SBP has recently launched the National Payment Systems Strategy to support the digitisation of banking and payments in the country. If banks don’t start embracing technology as a catalyst for change, they will be left behind. And, the banking business will be led by digital only players.

As far as the Financial Action Task Force is concerned, the country has gone in the right direction in terms of the rigour and vigour of addressing the underlying issues. HBL’s operating costs spent on compliance is rising.

The bank has completed its necessary transformation over the last one-and-half years. It has upgraded its sanctions screening and transaction monitoring systems while graduating to a real-time customer risk rating methodology incorporating FATF and Basel guidelines.

Q: What opportunities do you see in the country’s banking sector?

A: The banking sector’s loan-to-deposit ratio is low as compared to global standards. We have to start lending into the real sectors to become more meaningful players in these sectors especially in the agriculture and SMEs.

In HBL you will see further growth in the next two-three years in a very meaningful way. We are going to be very focused on Islamic banking. Additionally, it makes a lot of sense for us to be focusing on technology side because it plays to our strengths. HBL has invested a lot in boosting cyber security systems in an effort to protect our customers’ data.

There is an ongoing discussion in the management on how to improve the bank’s cyber security further. We are building our capacity internally and use specialized firms that are globally recognized to help us cope with cyber security threats.

Q: Will HBL continue to shrink its global presence?

A: We have presence in 15+ countries. HBL’s international footprint is important for the bank to service its domestic and international clients even better and this role will only strengthen in 2020. HBL is already the largest executor of CPEC- (China-Pakistan Economic Corridor) related financing in Pakistan.

To compete effectively, HBL will drive greater synergies within its global footprint. This drive will be achieved on the back of redeploying HBL’s valuable resources and tapping on economic corridors that exist within the network. This strategy will mean that HBL will be rationalising the operations in some markets.

The freed-up resources will create further capacity for accelerated investment in geographies that support HBL’s customers’ and clients’ strategic priorities.

The bank will continue to grow and maintain its presence in most countries in South Asia, the Middle East, selected countries in Europe and Asia.

Q: How important is Urumqi branch operation for HBL?

A: The Urumqi got RMB licence last year, and after all regulatory approvals started RMB business last month. We are the third bank in the Middle East and the Indian-subcontinent to have this licence, which is a major achievement. We have now started routing CNY remittances through our branch with intermediation from a Chinese bank. This branch has exclusively positioned HBL to offer end-to-end RMB intermediation.

Q: Is there any progress on upgrading the HBL's representative office in Beijing to a branch?

A: The Chinese regulators have accepted our application for upgrading our rep office to a branch. We are expecting regulatory approvals in the next 2-3 months. The Beijing branch will allow HBL to interact with regulators, major state-owned enterprises and leading financial institutions involved in China-Pakistan Economic Corridor and across other Belt and Road Initiative corridors.

We are now expanding our China coverage team with presence being setup in Dubai, Bangladesh, Sri Lanka etc. in the next few months. This would allow us to service our Chinese customers in multiple jurisdictions.

China is going to be a very important country for us going forward, not only in terms of our business book in China and CPEC, but also if China wants to take their Belt and Road project either through our branch network or our affiliates to the regions where HBL has presence.