Is Standard Chartered a rich man’s bank?

Standard Chartered is not just a rich man’s bank, insists head of retail banking

KARACHI: Is Standard Chartered a rich man’s bank?

After all, it is hard to imagine a schoolteacher or the owner of a small grocery shop as an archetypal Standard Chartered customer. Banking sector statistics also reinforce this perception.

For example, its average cost per branch in 2015 amounted to Rs106.1 million – the highest among the top 20 banks – with Silkbank coming at a distant second with Rs59.9 million.

Yet Standard Chartered managed to rake in a net profit of over Rs9.4 billion last year, which was the sixth highest in the industry. This was despite the fact the branch networks operated by most similar-sized banks were about three times larger than that of Standard Chartered.

According to Shezad Arif, head of retail banking at Standard Chartered, the impression of a rich man’s bank exists partly because it is now the only bank operating in Pakistan with a western pedigree.

“Furthermore, the impression is reinforced because we are the market leader in the priority space,” Arif told The Express Tribune while referring to high-net worth clients that maintain at least Rs3 million in deposit or assets under management.

However, he insists that it is the ordinary customers, not wealthy depositors, who drive the bank’s profitability. “Our 70% profitability comes from the personal segment because our largest customer base consists of employee banking,” he said while defining the concept as an all-in-one corporate salary account package customised for large corporate entities that sign up with Standard Chartered.

Up to one-third of total active clients of Standard Chartered belong to the employee banking segment. “If we open 3,000 accounts per month, up to 40% of them originate from employee banking,” he said, adding that roughly 150,000 clients belong to this category.

The net interest margin (NIM) of Standard Chartered clocked up at 6.6% for 2015, which was the highest among the top 20 banks. A measure of profitability, NIM is reflective of the gap between interest earned on loans and mark-up paid on deposits. So does it not mean Standard Chartered is paying depositors the lowest possible interest rate while charging borrowers the highest possible mark-up rate?

Arif does not agree. “Our NIM is high because our cost of funds is low. A significant chunk of our deposits is coming from employee banking. A savings account is not the requirement of a salaried person if he makes a monthly income of Rs25,000-Rs50,000.”

In addition to NIM, Standard Chartered also enjoys the highest CASA ratio in the banking industry. With 90% of its deposits originating from current and savings accounts (CASA), a cheaper source of funds, Standard Chartered appears to try harder than every other bank to attract cost-free or cheap deposits.

Arif says bank accounts of salaried people have a roughly 18% monthly retention ratio. This means a typical employee banking customer at Standard Chartered leaves about 18% of his salary in their account untouched every month. “We keep adding employee banking companies every month,” he said while explaining the unusually high concentration of current account deposits at Standard Chartered.

The bank grew its deposits by 7.5% last year, a rate that compares poorly with the rest of the banking industry whose deposits went up 12.5%. Arif attributed the seemingly slow growth in deposits to the fact that his bank helps clients with an all-around wealth offering that includes mutual funds, corporate bonds and treasury bills.

“What you don’t see in deposit numbers is the money that’s invested in wealth. It amounts to up to Rs40 billion,” Arif said.

Moreover, he says Standard Chartered stays away from the accounting gimmickry that other banks perform at the end of every year by taking up expensive deposits to inflate the growth rate.

As for the asset side of the balance sheet, annual accounts show Standard Chartered posted negative growth of 17% in loans unlike the rest of the banking sector that grew its advances by 8.3% over the same period.

“Oct-Dec 2015 shows the asset side is picking up. The trend is visible in the first quarter of 2015, too,” he said, adding a large part of assets are being generated via employee banking clients.

The writer is a staff correspondent 

Published in The Express Tribune, May 9^th, 2016.

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