Going north: Habib Metro Bank sets eyes on expanding presence in Punjab

Bank plans on diversifying its loan portfolio and revenue streams.

KARACHI: Habib Metropolitan Bank appears to be shaking off its Karachi-centric strategy and gearing up for a rapid expansion of its branch network, particularly in the agricultural and industrial belts in Punjab.

In an interview with The Express Tribune, the bank’s new CEO Sirajuddin Aziz laid out the organisation’s growth strategy: “We plan on growing the bank’s branch network in the cotton belt and the light engineering industrial belt in the GT Road region of Punjab,” said Aziz. “We plan on going into areas with a low penetration of banks, where Habib Metro currently has no presence.”

The bank currently has 138 branches, of which 80 are in Karachi – making it one of the most geographically concentrated banks in the country.

The bank’s high concentration in the nation’s largest city and commercial capital has to do with the port: Habib Metro has traditionally focused on trade financing, currently providing lending for up to 13% of Pakistan’s international trade.

The trade financing business was historically quite good for Habib Metro, giving the bank among the lowest rate of bad loans in the industry. Yet, in recent years, as more and more Pakistani exporters find it difficult to sell their goods to slowing economies in North America and Europe, that ratio has risen. The bank has had to write-off about 8.4% of its loan book as a bad asset.

There is another disadvantage of the trade finance business that is likely to begin biting into the bank’s profits unless it changes course: the interest that the bank can charge on such lending are relatively low, which means that it is more exposed to falling interest rates than some of its competitors.

Aziz’s strategy appears to be geared towards addressing both these concerns. While the bank plans on continuing to lend to export-oriented firms, it plans on broadening its lending activity not just to financing their international trade operations but also their working capital requirements – where it might be able to charge slightly higher interest rates.

The new CEO has considerable credibility in executing this strategy: he has already shown success at Bank Alfalah, where he was CEO for six years from 2005 through 2011.

Within weeks of taking over the bank, Aziz began to shake things up. While the bank’s legal name remains Habib Metropolitan Bank, the new CEO thought that it was a mouthful to pronounce, so the bank rebranded itself as Habib Metro Bank. “We wanted to retain the Habib name prominently, since it is a name people are most familiar with,” said Aziz, alluding to the fact that the Habib family that owns the bank has been associated with stable financial institutions in South Asia since 1941.

As the bank opens up branches in smaller cities, a more easily pronounceable name is likely to be helpful. The bank is particularly keen on entering the remittance market in smaller cities.

“Smaller cities in Pakistan see much of the flow of remittances, which can then turn into sticky deposits,” said Aziz. “A family that gets $500 from one of its members working abroad is unlikely to spend all of it, which will allow the bank to accumulate low-cost deposits over time.”

In addition, the remittance business is likely to earn the bank significant revenue in fees, boosting its non-interest based revenues and making it less vulnerable to shifts in interest rates.

Published in The Express Tribune, October 6^th, 2012.