As it swings back to profitability, Burj Bank seeks branch expansion

Consumer financing SME lending, likely to be bank focus in the coming year.

KARACHI: After at least two straight quarters of a return to profitability, Burj Bank – one of the smallest banks in Pakistan – is seeking to aggressively expand their branch network by as much as 50% during 2012.

“Burj Bank plans to have 75 branches by the end of the year,” Ahmed Khizer Khan, President and CEO of the bank, told a small group of journalists on Friday. “The bank currently has 50 branches and it will renovate some of them while relocating a few others.”

The announcement comes after the bank has reported two quarters of profits in 2011. While the results for the last quarter of the year are not yet out, the bank management’s optimistic tone suggests that Burj will likely end 2011 in the black, after having had two straight years of losses in 2009 and 2010.

The bank made about Rs43 million during the first nine months of 2011, compared to Rs536 million loss for the full year 2010.

The return to profitability comes on the heels of the bank’s recapitalisation and rebranding. On July 11, 2011, Dawood Islamic Bank was renamed Burj Bank after the company’s main shareholders injected about $21 million of capital into the bank to strengthen its balance sheet.

Key to the bank’s success seems to have been the extraordinary growth in its deposit base, which grew by about 60% from an admittedly low base of Rs12.6 billion in December 2010 to Rs20 billion in December 2011, according to the bank’s financial statements as well as senior management officials.

The bank’s financial success appears to have come despite the fact that its cost of deposits seems to have jumped sharply. The average deposit at Burj Bank earned about 5.7% in 2010 but earned about 7.8% in 2011, about a 37% jump.

Burj Bank’s return to profitability, therefore, appears to have two sources. Firstly, the bank is offering a higher rate of return on its deposits which has allowed it to acquire what appears to be a sufficient scale to remain profitable.

The second reason appears to be a dramatic reduction in write-offs of bad loans, the bulk of which were made during the height of the financial services boom in Pakistan in 2007 and 2008. Indeed, for the first nine months of 2011, Burj Bank actually took a reversal on provisions against losses to the tune of about Rs11 million.

After two years of write-offs, it appears that Burj Bank has cleared up its balance sheet and is now gearing up to take on more risk.

Burj’s CEO said that the bank is now planning on expanding its lending to small and medium enterprises and has already hired an SME lending manager.

And the bank appears to be preparing to increase its presence in consumer financing. On Friday, Burj Bank signed a memorandum of understanding with TPL Trakker, a company that provides security and tracking services for automobiles. Burj will provide Trakker’s services to all of its auto finance clients, in what the management hopes will be a tool to reduce the risk of default on auto loans.

“We have made vehicle tracking devices mandatory on all our financed vehicles to safeguard our asset for collective benefit of Burj Bank and its customers,” said Khan. Unlikely conventional banks, Islamic banks are co-owners of products they lease out to their clients and hence have greater exposure to risk.

Ali Jameel, CEO of TPL Trakker, said that while the bank will be able to keep its loan delinquencies in check, customers will be also able to get their stolen vehicles recovered at the same time.

Burj Bank currently only has about 100 clients using this feature, but plans to double that number in the coming months.

Additional input by Farooq Tirmizi

Published in The Express Tribune, January 14^th, 2012.