Best days of consumer banking behind us: Bank Alfalah

Rising NPLs cause bank to adopt more cautious route.

KARACHI:

Bank Alfalah, the bank that was at the forefront of the massive expansion of consumer lending in Pakistan in the 2000s, has effectively sidelined the product, with top leaders describing it as not being part of mainstream banking in Pakistan anymore.

“The peak of consumer financing is behind us,” said Bank Alfalah CEO Sirajuddin Aziz. “It can’t be a mainstream product anymore.”

The statement comes from the head of the bank that made its name as being one of the leaders of consumer lending in Pakistan.

While many of the consumer banking products known to customers today – credit cards, personal loans, etc – were introduced by Citibank Pakistan in the early 1990s, Bank Alfalah became the first bank to have consumer lending as one of its key business lines in the early part of the last decade. It became the seventh largest bank in Pakistan by assets in just ten years – entirely organically – through its aggressive growth strategy.

“We were lucky to come in 2001 and grab a large market then,” said the head of the Abu Dhabi Group bank in an interview with The Express Tribune. “Massive car and domestic appliance loans were given between 2002 and 2005 but it started taking its toll as non-performing loans swelled in 2007 onwards and the entire industry tightened its policy.”

The significant write-downs taken by most banks during the financial crisis of 2008 caused a culture of cautiousness to creep into the banking system. Nevertheless, while the industry has recovered since that time, most banks are unwilling to lend to consumers.

Dynamics have changed as most of the dealings are now with the government in the form of treasury bills.  Lending to the government rose by nearly 95% in financial year 2011, compared with last year, to reach Rs488 billion by June 4.

Lending to the government is an easy, high-return business and involves far less paperwork than lending to businesses and consumers. Buying treasury bills requires only a few staff members, as opposed to the army of bank employees who must vet any loan application by a business.

“The rates are high, the risk is low. It’s a good business,” said Aziz.  The low risk strategy seems to be working for Bank Alfalah. Profits were up 58.5% in the first quarter of 2011 and, at Rs930 million, nearly equalled the full-year profits of Rs968 million in 2010.

Bank Alfalah, however, seems to be one of the few bright spots in the Abu Dhabi Group’s Pakistan portfolio. The group – which has stakes in financial services and telecommunications in Pakistan – recently restructured its Pakistan business and appointed Atif Bajwa, former CEO of MCB Bank, its head in a bid to grow the group’s operations in the country.

Aziz doubted that the group’s Pakistan division can stand on its own feet as the group’s investments in the telecom sector were swamped with losses. He agreed that capital injections are needed to keep operations running in the short run, adding that in the long run the group will reap benefits after the struggle.

One of the areas the bank is exploring synergies with the group’s technology investments is to introduce branchless banking, using more integrated technology solutions to expand its financial services and break into the top 5 banks in the country, one of its long-term strategic goals.



Published in The Express Tribune, June 16th, 2011.