Download - Consumer Banking Industry

Dec 2009

Consumer Banking Industry of Pakistan

Group Name: Victor’s Clan

Group Members: Shaad Alvi (3697)

Tayyeba Mazhar (3822)

Ufaq Ashfaque (3451)

Jawad Ahmed Qureshi (2895)

Table of Contents

Consumer Banking Industry of Pakistan..........................................................................................................................1

Table of Tables............................................................................................................................................................................. 8

Table of Figures........................................................................................................................................................................... 9

Table of Equation..................................................................................................................................................................... 10

Abbreviations............................................................................................................................................................................ 11

Keys for the Chart............................................................................................................................................................... 11

Banks........................................................................................................................................................................................ 12

Acknowledgment..................................................................................................................................................................... 13

Executive Summary................................................................................................................................................................ 14

Industry Outline and Size.....................................................................................................................................................16

Consumer Banking............................................................................................................................................................. 16

Consumer Banking Industry Worldwide..................................................................................................................17

Consumer Banking Industry of Pakistan..................................................................................................................17

Products.................................................................................................................................................................................. 19

Industry Size..........................................................................................................................................................................20

Number of Companies:................................................................................................................................................ 20

Number of branches:....................................................................................................................................................21

Number of Units Produced:.......................................................................................................................................22

Industry Dimension and Statistics...................................................................................................................................23

Number of New Branches Opened/Closed..............................................................................................................24

Total Employment.............................................................................................................................................................. 28

State of the Banking Industry of Pakistan.....................................................................................................................30

State of the Banking Industry of Pakistan in the year 1947.............................................................................30

Nationalization and the Banking Industry...............................................................................................................31

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Background (1947-74)................................................................................................................................................31

Nationalization & Post – nationalization Achievements (1974 - 86)...........................................................33

Denationalization and the Banking Industry..........................................................................................................36

Financial Sector Reforms (1987 onwards).........................................................................................................36

Privatization of Banks..................................................................................................................................................36

New Pakistani Commercial banks..........................................................................................................................37

State Bank of Pakistan..................................................................................................................................................38

Chronology.............................................................................................................................................................................39

Major Player’s Profiles...........................................................................................................................................................46

Habib Bank Limited (HBL).........................................................................................................................................47

National Bank of Pakistan (NBP)............................................................................................................................51

United Bank Limited (UBL)........................................................................................................................................54

Collective Action Agents...................................................................................................................................................57

World Trade Organization...................................................................................................................................................61

WTO Regulations and Its Impact on Pakistan Banking Industry...................................................................61

IMPACT ON PAKISTAN BANKING INDUSTRY:..................................................................................................62

International Treaties and their impact:.............................................................................................................63

Impact on Pakistan........................................................................................................................................................64

IMPACT ON CHINA – MUCH WORK REQUIRED................................................................................................65

BANKING IN NORWAY: BETTER.............................................................................................................................66

General Agreement on Trade and Services – WTO..............................................................................................67

Article-I............................................................................................................................................................................... 67

ANNEX ON FINANCIAL SERVICES..........................................................................................................................68

SECOND ANNEX ON FINANCIAL SERVICES........................................................................................................71

Economic Impact of WTO.....................................................................................................................................................72

Economic Impact of WTO in Pakistan........................................................................................................................72

Economic impact of WTO in other countries..........................................................................................................73

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Incentives.................................................................................................................................................................................... 75

Incentives to the Banking Industry of Pakistan.....................................................................................................75

Incentives Offered in Past................................................................................................................................................75

FUNCTIONAL STRATEGIES........................................................................................................................................76

Incentives Being Asked by the Industry....................................................................................................................78

Incentives Offered in Other Countries.......................................................................................................................79

Service Delivery Process.......................................................................................................................................................82

Pricing and Costing................................................................................................................................................................. 83

Fixed and Variable Costs in the Banking Industry................................................................................................83

Fixed Cost.......................................................................................................................................................................... 83

Variable Costs.................................................................................................................................................................. 84

List of Available Products/Brands...............................................................................................................................85

HBL Credit Card Schedule of Charges for Credit Card...................................................................................85

HBL PLS – Savings Account........................................................................................................................................86

NBP PLS – Saving Account..........................................................................................................................................86

UBL Credit Card Schedule of Charges for Credit Card...................................................................................86

UBL UNIFLEX Account.................................................................................................................................................86

Pricing Model........................................................................................................................................................................ 86

Key Issues and Their Solutions..........................................................................................................................................87

Key Issues in Economy..................................................................................................................................................... 87

Key Human Resource Issues..........................................................................................................................................87

Effective work force:.....................................................................................................................................................88

Right people:.................................................................................................................................................................... 89

Compensation:.................................................................................................................................................................89

Job satisfaction:...............................................................................................................................................................89

Morale boosting:.............................................................................................................................................................90

Information sharing:.....................................................................................................................................................90

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Key Hurdles in Marketing................................................................................................................................................90

Impact of Political Parties/Bureaucracy...................................................................................................................91

Proposals Presented..........................................................................................................................................................91

Our Proposals....................................................................................................................................................................... 92

Human Resources Situations..............................................................................................................................................93

Human Resource Requirements...................................................................................................................................93

Job Titles, Job Descriptions, and Job Specifications.............................................................................................94

Branch Manager..............................................................................................................................................................94

Service Quality Coordinator......................................................................................................................................94

Sales..................................................................................................................................................................................... 95

Customer Call (Call Center Officer)........................................................................................................................95

IT Security Officer.......................................................................................................................................................... 96

Specific Training Institutions.........................................................................................................................................96

Porter’s Six Forces Model.....................................................................................................................................................97

Internal Rivalry.................................................................................................................................................................... 97

Concentration:................................................................................................................................................................. 97

Fixed and Variable Costs:............................................................................................................................................97

Capacity to Differentiate:............................................................................................................................................98

Pricing Behavior:............................................................................................................................................................98

Growth:............................................................................................................................................................................... 98

Bargaining Power of Suppliers......................................................................................................................................99

Supplier Concentration:..............................................................................................................................................99

Forward Integration:....................................................................................................................................................99

Switching Cost:................................................................................................................................................................ 99

Heterogeneity:.................................................................................................................................................................99

Bargaining Power of Buyers........................................................................................................................................100

Buyer Concentration:.................................................................................................................................................100

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Backward Integration:...............................................................................................................................................100

Switching Costs:........................................................................................................................................................... 100

Heterogeneity:.............................................................................................................................................................. 100

Threat of Substitutes.......................................................................................................................................................101

Availability......................................................................................................................................................................101

Suitability of Alternatives:.......................................................................................................................................101

Potential Entrants............................................................................................................................................................ 102

The Government/The Public.......................................................................................................................................103

Context Analysis.................................................................................................................................................................... 104

Defining the Subject........................................................................................................................................................ 104

Trend Analysis................................................................................................................................................................... 104

POLITICAL TREND ANALYSIS................................................................................................................................104

ECONOMIC TREND ANALYSIS...............................................................................................................................105

SOCIAL TREND............................................................................................................................................................. 108

TECHNOLOGICAL TREND ANALYSIS.................................................................................................................108

LEGAL TREND ANALYSIS.........................................................................................................................................108

Industrial Analysis – Strength and Weaknesses.................................................................................................109

STRENGTHS................................................................................................................................................................... 109

WEAKNESSES................................................................................................................................................................109

Defining Opportunities and Threats........................................................................................................................110

OPPORTUNITIES..........................................................................................................................................................110

THREATS......................................................................................................................................................................... 110

SWOT-I MATRIX................................................................................................................................................................110

Strategic Plan......................................................................................................................................................................111

Appendices 1........................................................................................................................................................................... 112

Appendices 2........................................................................................................................................................................... 114

Appendices 3........................................................................................................................................................................... 116

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Appendices 4........................................................................................................................................................................... 117

Appendices 5........................................................................................................................................................................... 119

Bibliography............................................................................................................................................................................ 121

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Table of Tables

The products that are included in consumer banking are in appendices 2 in < Table 1: Product

Descriptions>............................................................................................................................................................................. 19

Table 2: Consumer Bank’s Branches...............................................................................................................................22

Table 3: City Wise Distribution..........................................................................................................................................23

Table 4: Total Employment for 5 years..........................................................................................................................29

Table 5: No. of Scheduled Banks as of July 1st 1948..................................................................................................31

Table 6: Position of banks after Nationalization........................................................................................................33

Table 7: Commercial Banks Credit from 1972-1987................................................................................................34

Table 8: Bank Rankings.........................................................................................................................................................46

Table 9: HBL Credit Card Charges....................................................................................................................................85

The schedule is in appendices 5 < Table 10: UBL Credit Card Charges>.........................................................86

Table 11: UBL Uniflex Account Rates..............................................................................................................................86

Table 12: Cash Reserve Requirements........................................................................................................................105

Table 13: Statutory Liquidity Requirement...............................................................................................................105

Table 14: Discount Rate Imposed by SBP...................................................................................................................106

Table 15: Products offered by Consumer Banks.....................................................................................................113

Table 16: Product Descriptions.......................................................................................................................................115

Table 17: UBL Credit Card Charges...............................................................................................................................120

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Table of Figures

Figure 1: Classification of Banking Industry................................................................................................................16

Figure 2: No. of People Employed from 1973-1986.................................................................................................35

Figure 3: Branch Percentages.............................................................................................................................................46

Figure 4: Habib Bank Corporate Information..............................................................................................................50

Figure 5: NBP Corporate Information.............................................................................................................................53

Figure 6: UBL Corporate Information.............................................................................................................................56

For Service Delivery Process, see appendices 3 and 4 <Figure 7: The Loan Process, Figure 8: Credit

Card Processing Form >........................................................................................................................................................82

Figure 9: Rate of Inflation from 1950-2009..............................................................................................................107

Figure 10: The Loan Process............................................................................................................................................116

Figure 11: Credit Card Processing Form.....................................................................................................................118

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Table of Equation

Equation 1: Price (Interest rate) for Loan......................................................................................................................86

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Abbreviations

Keys for the Chart

CA: Current Account

CYA: Current Yield Account

OD: Over drafting

S.Ac: Saving Account

Dep.A: Deposit Account

Forex: Foreign Exchange Accounts

Lkrs: Lockers

ATM: ATM Cards

Deb: Debit Cards

Crdt: Credit Cards

Prep: Prepaid Cards

Chq: Cheques

Othrs: Other Paper Instruments

Pers. Fin: Personal Finance

Hme.Fin: Home Finance

Auto: Auto Finance

Boat: Boat Finance

Stud. Loan: Student Loans

Bus. Fin: Business Finance

INS: Insurance

Mob.B: Mobile Banking

E-B: E-Banking

Trav.C: Traveler’s Cheque

Fun.T: Funds Transfer

Util-Bill: Utility Bill Payment

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Banks

Bank Alfalah Limited

ABL – Allied Bank Limited

AHB – Arif Habib Bank Limited

Askari Bank

Atlas Bank

Bank Al-Habib

Barclays Bank

Faysal Bank

HBL – Habib Bank Limited

Habib Metropolitan Bank

JS – JS Bank Ltd.

KASB – KASB Bank

MCB – Muslim Commercial Bank Ltd.

MyBank Limited

NIB – NIB Bank Limited

SAMBA – SAMBA Bank Limited

Silk Bank

Soneri Bank

UBL – United Bank Limited

Bank of Punjab

Citibank

SCB – Standard Chartered Bank Limited

RBS – Royal Bank of Scotland

HSBC – Hong Kong Shanghai Bank Corporation

First Women Bank Ltd

National Bank of Pakistan Ltd

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Acknowledgment

First of all we would like to thank Almighty Allah who has guided us the way for a bright future. We

would like to acknowledge the help provided by our teacher to make this project a success.

We would like to acknowledge our teacher Mr. Qazi Salman, who helped us a lot in the preparation

of this project. He was always full of energy and willing to teach students the concept about

analyzing a report critically with his working and practical experiences.

We are also thankful to our parents who accommodated us during those long hours to work in our

project development and all the friends and colleagues who equally encouraged us.

We would like to appreciate the co-operation we got from our class mates at PAF KIET, which

boosted our moral and encouraged us to strive for better results.

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Executive Summary

Banking has been labeled as the backbone of an economy. This sector intends to tailor all sectors,

such as manufacturing, service, etc. It provides services to the society such as lock-up facilities,

accepting deposits, advancing loans, thereby providing strength and strong foundation to maintain

smooth economic conditions in the country.

The report comprises our focus on consumer banking, which regards the phenomena where

banking institutions intend extensive and regular transactions with the general public, rather than

organizations or institutes.

Consumer banking has greatly evolved from being just a combination of firms to a multi-tiered,

complex system, entertaining increasing competition and catering consumers in response to their

demands and requirements. Looking back to the previous years, the global banking industry has

seen the worst of outcomes and throughputs with cases and examples such as Lehman Brothers,

Merrill Lynch, etc., who faced tremulous situations, thereby leading the entire world in the black

hole of irrecoverable amounts and irreversible losses. According to statistics and the forecasts of

the many finance heads of authority, ‘2008 is one year that will always be an ugly dream, that shall

haunt for all times to come and will always be remembered for the shocks it bought with it.’

Coming to the present scenario and looking forward into the future, banking industry has come on

the verge of recovery and revival at a snail’s pace. In today’s modern era of rapid development and

expansion, banking shows immense potential to expand and grow, thereby aiming to cater a greater

customer clientele and making itself an inevitable option to choose for the well-being of the

economy of the country.

Pakistan is the sixth most populous country, fourth in Asia and second in SAARC countries; with a

population of more than 170 million, consumer banking industry in Pakistan is growing

exponentially. Over the last decade, Pakistan banking industry witnessed a phenomenal growth,

especially in the past 5 years.

Various products are offered in the Pakistan consumer banking industry; current accounts, debit

cards, business finance etc. are just a few of the several services provided to its customers.

Banking Industry in Pakistan comprises 26 companies, widespread over a network of more than

9000 branches, spreading all over Pakistan, connecting all cities and areas of the country under a

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single hub. An approx. 131760 people (Total Employment: 2007-2008) are employed in banking

industry, creating opportunities for its current and potential customers.

Every industry is pioneered by major players. In case of banking, there are 3 major players: Habib

Bank Limited (HBL), United Bank Limited (UBL) and National Bank of Pakistan (NBP).

HBL was established on August 25, 1941; even before the inception of an independent, consolidated

state we call Pakistan today. It has the largest domestic branch network with over 1400 branches

and 55 branches worldwide. Its domestic market share is over 40%, making HBL the ‘Godfather’ of

the Pakistani Banking Industry. It aims and continue to dictate the commercial banking sector with

a major market share of inward foreign remittances (55%) and loans to small industries, traders

and farmers.

In second place we have NBP, which was established under the National Bank of Pakistan

Ordinance, 1949. NBP acts as an agent where the State Bank of Pakistan (SBP) didn’t have its own

branch. NBP headquarters in Karachi, with over 1200 branches countrywide, providing services to

both the commercial and public sector.

Our final player is UBL, established on November 7, 1959. With the use of advance technology, UBL

has focused positively on appropriate market segments and projects that it will facilitate rapid and

sustainable growth. UBL has employed over 15000 employees, intending prompt attention to

customer needs and always keen and eager to fulfill their social responsibilities.

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Industry Outline and Size

Consumer Banking

Consumer banking is also known as “retail banking”. It can be defined as banking in which the

banking institutions execute transactions directly with consumers, rather than corporations or

other banks. These banks offer services such as saving and checking accounts, consumer loans,

credit cards and other such services to individuals.

Figure 1: Classification of Banking Industry

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Consumer Banking Industry Worldwide

Consumer banking helps to increase the economic growth. Consumer banking has provided the

means of comfortable and effective environment to the consumer. The consumer banking industry

has become increasingly competitive due to the changing needs of the consumer they serve.

Banking system has been instrumental in the development of World Economy. When banks offer

loans & related products at a lower interest rate, it enhances the growth prospects of the economy

and vice-versa. But in the process of aiming higher targets and profits, many a times banks end up

giving loans to the defaulters who not only turn bad but also let the bankers huge losses. During

2005-2007, lending all over the world grew rapidly mainly on account of hike in real estate prices,

and banks even sanctioned loans to sub-standard borrowers. Interest rates charged were very high

and ultimately the real estate bubble burst out. This created huge liquidity crunch and steep rise in

the default rates. World's largest banks like Merrill Lynch, Lehman Brothers, etc. filed for

bankruptcy.

As a result, the world economy shook up. Banking industry witnessed series of shocks and people's

trust on the banks was lost. Mergers and Acquisitions which once became a theory, converted into

reality. Now, with restricted measures and effective control banking sector has emerged on the path

of recovery.

Consumer Banking Industry of Pakistan

Pakistan is the sixth most populous country of the world, fourth in Asia and second in SAARC

countries, with a population of more than 170 million of which 100 million is less than of 25 year of

age and with a 30 million of strong middle class the consumer banking industry of Pakistan is

growing exponentially. Many in Pakistan benefits from consumer banking services but still there is

an ample opportunity of growth. Over the last decade, Pakistan witnessed a phenomenal growth of

consumer banking. This unprecedented development has followed privatization of nationalized

banks, banking reforms brought about by the State Bank of Pakistan and an increasingly marketing-

oriented approach primarily aimed by banks at a large urban consumer base. It is not very well

differentiated, as most banks offer both consumer and corporate banking services. Over the last 5

years Pakistan witnessed an extraordinary growth in consumer banking.

Be they large or small bank, multinational or local, each one of them is geared towards making its

mark in an already competitive environment that is the outcome of consumer banking.

Multinational banks such as Barclays, Citibank and Standard Chartered have the support of the

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knowledge base and funds of their foreign principals which makes them efficient in introducing

new products, services and innovative technologies to their consumer base.

Hot on the heels are the privatized banks, UBL, HBL and MCB which have embarked in consumer

financing activities in not just big cities but smaller ones too, by virtue of their huge branch

network. In doing so, they have generated huge volumes of business while at the same time driving

down the prices of the products they offer. For instance, in 2002, HBL’s consumer banking portfolio

was worth less than a billion rupees. By the end of 2004, it is worth Rs. 17 billion. Similarly, since

2003 when it was privatized, UBL has launched many new products. And where the local banks

such as Soneri, Askari and Union lack in technology, they make up by offering similar services at a

much lower costs in our urban centers.

While the foreign banks have played the pipers’ role when it comes to introducing new products,

they have targeted the same segment which may be one of their limitations in this area. On the

other hand, according to industry experts the real growth comes from local giants such as the UBL,

HBL and MCB which have the necessary experience and knowledge of customizing products to

specific local preferences.

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Products

There are different products offered by each of the different consumer banks in Pakistan. The

products offered by each banks are in appendices 1 in <Table 1: Products offered by Consumer

Banks>.

The products that are included in consumer banking are in appendices 2 in < Table 1: Product

Descriptions>.

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Industry Size

Number of Companies:

1. Alfalah Bank of Pakistan

2. Allied Bank of Pakistan

3. Arif Habib Limited

4. Askari Bank

5. Atlas Bank

6. Bank Al-Habib

7. Barclays Bank

8. Faysal Bank

9. Habib Bank

10. Habib Metropolitan Bank

11. JS Bank

12. KASB Bank

13. MCB Bank Limited

14. Mybank Limited

15. NIB Bank

16. SAMBA Bank Limited

17. Silkbank Limited

18. Soneri Bank

19. United Bank Limited

20. Bank of Punjab

21. Citibank

22. Standard Chartered Bank Ltd

23. Royal Bank of Scotland Ltd

24. HSBC Ltd

25. First Women Bank Ltd

26. National Bank of Pakistan Ltd

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Number of branches:

No. Banks Branches

1 The Bank of Punjab 273

2 Allied Bank Ltd. 760

3 Arif Habib Bank Ltd. 12

4 Askari Bank Ltd. 154

5 Atlas Bank Ltd. 32

6 Bank Al-Falah Ltd. 223

7 Bank Al-Habib Ltd. 202

8 Faysal Bank Ltd. 111

9 Habib Bank Ltd. 1,450

10 Habib Metropolitan Bank Ltd. 100

11 JS Bank Ltd. 9

12 KASB Bank Ltd. 40

13 MCB Bank Ltd. 1, 025

14 Mybank Ltd. 69

15 NIB Bank Ltd. 241

16 Soneri Bank Ltd. 92

17 Standard Chartered Bank 178

18 United Bank Ltd. 1, 082

19 Citibank 26

20 HSBC 12

21 Barclays 14

22 Samba Bank 28

23 National Bank 1, 245

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24 RBS 79

25 First Woman Bank Ltd. 38

26 Silkbank Unavailable

Total 9, 057

Table 2: Consumer Bank’s Branches

Number of Units Produced:

Citibank had issued over 125,000 VISA cards

MCB card users are over 250,000

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Industry Dimension and Statistics

Keeping in view the diversity of the banking sector, being the sole provider of funds for sound

banking, it covers a huge network of speedy and sticky branches, spreading all over Pakistan,

connecting all cities and all areas of the country under a single hub.

Thus, you may see the following distribution network city wise of all scheduled banks covering

Pakistan’s territory:

BANKS KARACHI LAHORE ISLAMABAD PESHAWAR

Royal Bank of Scotland 25 24 3 3

Allied Bank 100 68 29 25

Habib Bank Limited 150 88 19 24

Arif Habib Rupali Ltd. 7 2 1 -

Askari Bank 36 35 5 11

Atlas Bank 13 7 11 5

Bank Alfalah 43 35 9 5

Bank Al-Habib 83 38 5 4

Faysal Bank 31 31 6 5

First Woman Bank Ltd. 10 4 2 2

Habib Metropolitan Bank 62 22 2 1

JS Bank Ltd. 5 3 1 -

MCB Bank Ltd. 120 86 17 18

Silk Bank Ltd. 16 11 4 2

Soneri Bank Ltd. 39 17 2 2

MyBank Ltd. 24 11 3 3

NBP 84 54 22 20

NIB 85 45 14 8

Table 3: City Wise Distribution

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Number of New Branches Opened/Closed

We have considered the timeframe from the year 2003-2008, along with data from the years 1948

to 1950 and then from 1978 to 2003.

In October 1948, with the inception of newly born Pakistan, there were 36 branches

handling the operations. The number increased to 39 in the year 1949, however declined to

34 in the year 1950, due to the division of financial assets between the two sibling rivals.

By the end of 1958, there were a total of 26 banks comprising the Pakistani territory, out of

which 7 were Pakistani banks, 10 were Indian banks and 9 were exchange banks, working

with a web of 308 branches.

Moving down the line, two decades later, in the year 1978, there were 28 banks with 6,595

branches, out of which 9 were Pakistani banks with 6,552 branches and 19 were foreign

banks, with a total of 42 branches.

In 1979, there were 30 banks, with a network of 6,470 branches, out of which 9 were

Pakistani banks, operating with 6,689 branches, while the remaining 21 were foreign banks,

spread over a network of 51 branches.

In 1980, the number remained constant with 30 banks, with a network of 6,816 branches,

out of which 9 were Pakistani banks, operating with 6,760 branches, while the remaining 21

were foreign banks, spread over a network of 56 branches.

In the year 1981, there were 30 banks, with a network of 7,297 branches, out of which 9

were Pakistani banks, operating with 7,241 branches, while the remaining 21 were foreign

banks, spread over a network of 56 branches.










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were Pakistani banks, operating with 6.958 branches, while the remaining 23 were foreign


In the year 1986 there were 31 banks, with a network of 7,050 branches, out of which 9



























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In the year 2003-04, there were 45 banks, with a network of 6,882 branches, out of which

28 were Pakistani banks, operating with 6,803 branches, while the remaining 17 were

foreign banks, spread over a network of 79 branches.




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Total Employment

BANKS 2003-04 2004-05 2005-06 2006-07 2007-08

Allied Bank 6,859 6,747 8,273 8,879 10,279

Alfalah Bank 2,147 3,388 6,289 8,079 9,183

Askari Bank 1,723 2,118 4,533 5,226 6,808

Atlas Bank 55 152 247 781 1,025

Arif Habib Bank 29 28 24 192 319

Bank Al-Habib 1,253 1,462 2,182 2,896 2,764

Barclays Bank

Citi Bank 611 636 3,154 4,077 3,529

First Women Bank 524 507 513 531 535

Faysal Bank 722 899 1,530 2,069 2,475

HSBC Bank 126 123 138 321 788

Habib Bank 18,800 18,625 16,228 14,488 14,572

JS Bank 18 458 755

KASB Bank 445 500 815 1,206 1,320

MCB Bank Ltd. 10,235 9,983 12,638 14,930 17,120

MyBank Ltd. 1,014 1,031 978 969 824

NIB Bank 249 403 786 1,632 5,580

NBP 13,272 13,745 15,176 15,356 16,429

SAMBA Bank Ltd. 334 495 709 1,224 1258

Silkbank Ltd. 634 704 981 1,426 1,253

Soneri Bank 882 937 1,257 1,430 1,581

UBL 8,881 9,287 13,479 15,502 15,054

CitiBank 611 636 3,154 4,077 3,766

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Standard Chartered Bank Ltd. 631 728 8,120 9,245 10,120

Royal Bank of Scotland 272 322 1,970 3,042 5,093

TOTAL 70,309 73,456 103,192 118,036 132,430

Table 4: Total Employment for 5 years

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State of the Banking Industry of Pakistan

State of the Banking Industry of Pakistan in the year 1947

In March 1947, there were 3496 offices of Indian schedule banks out of which as many as 487 were

situated in territories presently constituting Pakistan.

The partition plan was announced on 3rd June 1947 and 15th August 1947 was fixed as the date on

which independence was to take effect. This left barely 2 months to divide the government

machinery and the assets and liabilities of undivided India. Among others, an Expert committee was

set up to deal with the problems of coinage, currency exchange, the division of the assets and the

liabilities of the Reserve Bank of India, and the membership of the IMF and the World Bank. Since

the Reserve Bank of India was the central Banking authority in India, it was decided, that in the

interest of the smooth transition, it should continue to function in the new dominion of Pakistan

until 30th September 1948. This decision, necessitated by the administrative and technical

difficulties involved in immediately establishing and operation a central bank, was embodied in the

Pakistan Monetary System and the Reserve Bank order of 1947.The order was stipulated that

Pakistan would take over the management of the public debt and exchange control from the

Reserve Bank of India on 1st April 1948 and the Indian notes would continue to be legal tender in

Pakistan until 30th September 1948.

The events immediately after independence seriously strained political relations between the two

countries and a point was reached when it became evident that without control of its currency and

banking, Pakistan would remain exposed grave dangers. Following the announcement of the

independence plan in the June 1947, there was a rush on Banks to transfer funds and accounts.

Consequently, Banking services in Pakistan were seriously impaired and drastically curtailed. The

Banks which had their registered offices in Pakistan transferred them to India. In an effort to bring

about the collapse of the new state by perusing a deliberate policy of withdrawal, the Indian Bank

offices closed quickly. Those Banks which stayed operated only in name pending the winding up of

their business. The number of scheduled Banks offices thus declined, from 487 before

independence to only 195 by June 1948.

Pakistan’s banking system at that time consisted of 19 non-Indian foreign Banks, no higher in status

than small branch offices whose policies and operations were controlled by their head offices.

These banks which had their roots in the movement of export crops, had only a limited interest in

the economic fortunes of the new state. The decline in the number of foreign banks between 1947

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and 1973 is essentially because of the transfer and closure of banks of Indian origin. The number of

branches of Banks of foreign origin also declined substantially from an estimated 206 in 1947 to

only 28 in 1973. The only two Pakistani institutions were Habib Bank, which had transferred its

office from Bombay to Karachi after the announcement of the independence plan, and the

Australasia Bank, which had been functioning in the Pakistan territories prior to June 1947.

As of 1st July 1948

NO. of Scheduled Banks

No. of Bank Offices

West Pakistan East Pakistan

Total

Pakistani Banks 2 23 2 25

Indian Banks/ Foreign Banks 29 45 106 151

Exchange Banks 7 16 3 19

Total 38 84 111 195

Table 5: No. of Scheduled Banks as of July 1st 1948

Nationalization and the Banking Industry

Background (1947-74)

The most important function of the Banking Institution is to provide credit. The manner in which

the Banking Industry provides credit to a large measure determines the pace of economic

development of any country. In the first 26 years, or so, the credit policy of the Banking Industry got

fairly skewed and corrective actions were required to be taken.

The government was fully aware of the distortions in the flow of bank credit and of the unhealthy

practices that came to develop in the Banking Industry during the course of its rapid expansion

throughout the fifties and sixties. Enquiries were conducted more than once to determine what may

be rightly called the malfunctioning of the Banking Industry.

One of the major enquiries that was instituted to examine in some detail the credit dispersal policy

of the scheduled banks in Pakistan, which was almost entirely in the private sector, was the Credit

Enquiry Commission which was setup in February, 1959. The Credit Commission of 1959 pointed

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out that credit dispersal tended to move in the direction of the more substantial elements of the

society who could provide better security for obtaining loans, both in terms of tangible items like a

large deposit base, building or property, or often on the strength of business reputation,

creditworthiness and goodwill.

The 1959 Credit Commission was of the opinion that since the capacity of the relatively small

borrowers to provide sufficient security was lacking, credit was not reaching those sectors of the

economy which could rightly be called the primary producers.

The Central Bank of the country, gave its full support in facilitating the work of the commission. In

fact, it was the State Bank itself which provided the commission with the data which revealed that

as of March 31, 1958, 63% of total bank credit was provided to only 222 loan accounts. The data

provided by the State bank clearly revealed a significant concentration of Bank credit in a limited

number of hands. The State Bank also deposed before the commission that credit to borrowers of

small means as well as of small requirements was not being provided by the commercial banks of

the country and, in a certain sense, lack of financial resources impeded the growth of the small

agricultural, industrial as well as the commerce and trade sectors.

In the forgoing discussion the distortion in credit dispersal and concentration of Banking,

Industrial and Insurance interests in a limited number of family groups, coupled with the virtual

denial of credit to the primary sectors of the economy, have been taken note of. In addition of the

manifesto pledged by the then government the above causes provided the main justification for

taking over the banking industry in the public sector in January 1974. It is thus noticed that despite

the high growth rates achieved by the banking Industry in the various sub-sectors during 1947-73,

certain malfunctioning, particularly in regard to credit dispersal were also sufficiently in evidence.

32 | P a g e

Nationalization & Post – nationalization Achievements (1974

- 86)

The Banking Industry in Pakistan was nationalized on January 1st, 1974, through an ordinance

issued by the President, and ratified later by the National Assembly, as the Nationalization Act of

1974. Under this act , all scheduled banks of Pakistan origin, details of which are given in the

annexure, with their total assets and liabilities, were taken over by the Federal Government, while

the rights of depositors were simultaneously guaranteed by the government. Banks of foreign

origin, operating in Pakistan, were not nationalized. Prior to nationalization there were 8

commercial Banks with 28 branches of foreign origin; their share in total domestic deposits and

advances was 6.88% and 8.09% respectively, of the total scheduled banks in Pakistan. Prior to

nationalization, at the end of December 1973, there were 13 commercial banks of Pakistan origin,

having 3000 branches which were ultimately merged to form 5 nationalized commercial banks.

NATIONALISED BANKS - AT A GLANCE

Year ended 31st December 1973 1974 1977 1980 1983 1986

Growth in 86 Over 73

Number of Banks 13 6 5 5 5 5 About one-half

Number of Branches 3000 4463 6653 7192 7012 6786 Over 2 times

(Rs.

In M

illio

n)

Equity 510

.0 579

.9 915

.7 1,315.

0 4,459.

9 7,386.

7 Over 14 times

Total Deposits 21,836

.2 26,023

.0 52,906

.1 84,557.

2 159,661

.9 218,048

.3 About 10 times

Total Advances 12,746

.2 18,988

.0 32,925

.8 51,290.

5 90,971.

1 133,703

.6 Over 10 times

Total Assets 37,119

.3 18,064

.9 79,878

.4 125,783

.3 225,334

.3 321,760

.1 Over 8 times

Net Profits 202

.9 369

.7 615

.9 668.

5 1,274.

6 1,544.

9 Over 7 times

Table 6: Position of banks after Nationalization

The growth of the nationalized commercial Banks during the 13 years, up to the end of 1986,

compared to the situation as obtained at the end of December 1973, has been phenomenal by any

standard.

33 | P a g e

It is gratifying to note, that the quantitative gains achieved by the banking industry during 1974-86

have been accompanied by qualitative change, which has resulted in largely removing the

shortcomings of the Banking Industry which characterized its pre – nationalization era.

The Pakistan Banking Council was setup in January 1st, 1974, to oversee the functioning of the

nationalized commercial banks. The leadership and the guidance provided by the Pakistan Banking

Council have gone a long way in bringing about qualitative changes in the nationalized commercial

banking sector.

After the nationalization of the banking industry, the most significant change that has occurred is in

regard to its credit dispersal policy. The National Credit Consultative Council now sets credit targets

on a yearly basis for the various sectors and sub-sectors of the economy, including mandatory

credit targets to be provided as small loans. Bank credit now flows to the various competing sectors

of the economy in line with the requirements at the macro-level, as determined by the government,

through its yearly projection. Sectors previously denied bank credits, particularly the agricultural

sector, now get adequate financial resources.

The change that has taken place in credit dispersal can be seen from figures given below:

COMMERCIAL BANKS CREDIT - PRIORITY SECTORS

1972-73 1979-80 1986-87

Agricultural 413.

8 2,899.

2 7,825.

8

of which small loans 57.

0 797.

0 5,994.

0

Industry 5,377.

7 14,615.

4 45,522.

9


0 895.

0 1,741.

0

Commerce and trade 3,886.

6 10,662.

4 27,002.

1


0 529.

0 363.

0

Housing 178.

1 1,117.

3 1,200.

2


0 193.

0 -

Table 7: Commercial Banks Credit from 1972-1987

34 | P a g e

The Banking council of Pakistan also encouraged the nationalized commercial Banks to open more

branches in the rural sector. This policy was bearing fruits in terms of greater mobilization of

financial resources available in the rural sector. Additionally, it is also helping the economy to

become progressively more monetized.

The nationalized commercial Banks were also the source of providing employment to a large

number of people. The total number of staff employed by the nationalized commercial banks has

more than doubled from 41,514 in 1973 to 85,008 in 1986.

Figure 2: No. of People Employed from 1973-1986

35 | P a g e

Denationalization and the Banking Industry

Financial Sector Reforms (1987 onwards)

If years 1947 to 1973 can be termed as formative phase of Banking Industry in Pakistan, and period

since 1974 as of its nationalization, then period after 1987 is that of financial sector reforms.

Although actual reforms took place in 1990-91 onward, but pressure on the government to

disinvest some of the nationalized banks and/or to allow establishment of banks in the private

sector was there even before the year 1987.

As stated earlier, during 1987-97, there was the change in the policy about ownership of the Banks.

It was a shift from the policy from nationalization to that of privatization. Reasons for such changes

were stated to be (a) mismanagement, (b) non existence of competition, (c) mounting high non-

performing loans of nationalized commercial banks. During this decade emphasis was to apply the

free market economy mechanism in every sphere of national economy, be it banks or rising of funds

for the government.

Reforms in the financial sector were intended to reduce its segmentation, strengthen the capital

base of the banks, and introduce competition in the sector to improve efficiency, reduce

disintermediation and switch over to indirect and comparatively more efficient methods of

conducting monetary policy.

Above objectives were to be achieved through privatization of banks, allowing new commercial

banks in the private sector, broadening of the financial market, improving public debt management,

extension of state bank’s of Pakistan Regulatory and Supervisory jurisdiction to non bank financial

institutions, and development of an active secondary market for negotiable instruments.

Privatization of Banks

During 1989-90, an amendment was made in the banks (Nationalization) Act 1974, which

empowered the Federal government to sell all or any part of the share capital of nationalized

commercial banks.

In the wake of these amendments 26% of shares valuing 149.8 million of the Muslim Commercial

Bank Ltd., held by the State bank of Pakistan were sold and the Bank’s management was transferred

to the purchasers of these 26% shares.

36 | P a g e

During the year 1991-92, the Allied bank of Pakistan Ltd., was privatized by disinvesting 26% of its

shares. In February 1992, 25% shares of Muslim Commercial Bank Ltd. were offered to the general

public raising the private sector total shareholding in the Capital of Muslim Commercial Bank Ltd.,

to 51%.

New Pakistani Commercial banks

The First Women Bank Limited was established in the public sector during the year 1989-90.

In order to provide the legal framework to enable the Federal government to pursue its policy of

privatization, the Banks (Nationalization) Act 1974 was amended in 1991 empowering the

government to permit the establishment of a bank in the private sector if it was satisfied that it

would be in the public interest. For this purpose the government constituted a committee under

chairman ship of Governor State Bank of Pakistan to scrutinize applications received from the

private sector for setting up a new bank and make recommendations to the government on the

basis of the eligibility criteria laid down.

Based on the recommendations of the committee referred to above, permission for opening the

following 10 new commercial banks in the private sector was given on 26th August 1991.

Bank Commerce Al Habib Ltd.

Soneri Bank Ltd.

Union Bank Ltd.

Mehran Bank Limited.

Indus Bank Limited.

Prime Commercial Bank Limited.

Askari Commercial Bank Limited.

Bolan Bank Limited.

Capital Bank Limited.

Republic Bank Limited.

All the Banks except Capital bank limited and Republic Bank Limited started functioning.

During 1994-95, three new private sector Pakistani banks viz. Faysal Bank Limited, Platinum

Commercial bank Limited and Prudential Commercial Bank Limited commences their business in

Pakistan. In addition two provincial banks viz. The bank of Punjab and The Bank of Khyber were

37 | P a g e

declared as schedule Banks with effect from 19th September 1994. The year 1995 witnessed the

formation of two private banks, which are Faysal Bank and Platinum Commercial Bank.

Crescent Commercial bank was formed in 2004 whereas My Bank for formed in 2005.

State Bank of Pakistan

In February 1994, the State Bank was given full autonomy, during the financial sector reforms.

On January 21, 1997, this autonomy was further strengthened when the government issued three

Amendment Ordinances (which were approved by the Parliament in May 1997). Those included

were the State Bank of Pakistan Act, 1956, Banking Companies Ordinance, 1962 and Banks

Nationalization Act, 1974. These changes gave full and exclusive authority to the State Bank to

regulate the banking sector, to conduct an independent monetary policy and to set limit on

government borrowings from the State Bank of Pakistan.

38 | P a g e

Chronology

1947 After Pakistan was born in 1947, Habib Bank, moved its headquarters to Karachi,

Pakistan's first capital.

Australasia Bank (now ABL) was the only fully functional Muslim Bank on

Pakistan territory on August the 14th, 1947.

1948 State Bank of Pakistan commenced operation on July 1, 1948.

Formation of Muslim Commercial Bank (MCB).

1949 National Bank of Pakistan (NBP) was established under the National Bank of

Pakistan Ordinance 1949 and was government-owned.

1950 1950 NBP established a branch in Jeddah, Saudi Arabia.

1951 Formation of Institute of Bankers Pakistan (IBP).

HBL opened the first of 3 branches in Sri Lanka.

1952 HBL established Habib Bank (Overseas).

1953 Pakistan Banks’ Association was constituted as a Private Limited Company on

31st March 1953.

1955 By this time NBP had branches in London and Calcutta.

1956 State Bank of Pakistan Act 1956.

HBL opened first of 5 branches in Kenya.

1957 HBL opened a branch in Aden.

NBP established a branch in Baghdad, Iraq.

1959 Agha Hasan Abedi founded the UBL in 1959.

Credit Enquiry Commission was setup in February, to examine in some detail the

credit dispersal policy of the scheduled banks in Pakistan.

1961 Formation of Agricultural Development Bank of Pakistan (ADBP) now Zarai

Taraqiati Bank Limited (ZTBL)

Formation of Industrial Development Bank of Pakistan (IDBP).

HBL opened the first of what would become 6 branches in the UK.

1962 Banking Companies Ordinance 1962.

39 | P a g e

http://en.wikipedia.org/wiki/1947

http://en.wikipedia.org/wiki/1947

NBP established a branch in Dar-es-Salaam,Tanzania.

1964 HBL opened the first of 4 branches in Mauritius and a branch in Beirut.

The Iraqi government nationalized NBP's Baghdad branch.

1966 HBL opened the first of 8 branches in the UAE.

1967 The Tanzanian government nationalized the Dar-Es-Salaam branch.

1969 HBL opened first of 3 branches and an OBU in Bahrain. However, HB’s branch in

Aden is nationalized.

1971 HBL opened an OBU in Singapore and a branch in New York.

1972 HBL opened the first of 11 branches in Oman. HBL constructed Habib Bank Plaza

in Karachi to commemorate the bank’s 25th Anniversary.

1973 Introduction of Export Financing Scheme by SBP.

1974 Nationalization of SBP.

The Pakistan Banking Council was setup in January 1st, 1974.

Formation of Allied Bank Limited.

The government of Pakistan nationalized HBL and HBL merged with Habib Bank

(Overseas).

The government of Pakistan nationalized NBP. As part of the concomitant

consolidation of the banking sector, NBP acquired Bank of Bahawalpur.

Government of Pakistan nationalized UBL.

1975 HBL opened a branch in Belgium. HBL also merged with Standard Bank, a

Pakistani bank.

1976 HBL opened a branch in the Seychelles, the first of two branches in Bangladesh,

and a branch in the Maldives.

1977 NBP opened an offshore brain Cairo.

1979 HBL opened a branch in the Netherlands.

1980 HBL opened a branch in Paris and another in Hong Kong.

1981 HBL established Nigeria Habib Bank with 40% ownership. HBL also opened a

40 | P a g e

representative office in Teheran.

1982 HBL opened a branch in Khartoum.

1983 HBL opened branch in the Karachi EPZ and a branch in Istanbul.

1984 HBL established Habib American Bank in New York with a branch each in

Manhattan and Queens, and a US International Banking Facility. HBL also opened

a branch in California.

1987 HBL opened in Australia.

1989 The First Women Bank Limited was established in the public sector during the

year 1989-90.

The bank of Punjab was established in 1989

1991 Mehran Bank was incorporated.

The Habib Group established a separate private bank, the Bank AL Habib, after

private banking was re-established in Pakistan. HBL opened a branch in the Fiji

Islands, and took over the Pakistani branches of failed bank, BCCI.

In September, ABL was privatized.

Bank AL Habib was incorporated as a public limited company and began banking

operations as a new private bank in 1992.

Askari Bank Ltd (formerly Askari Commercial Bank) was incorporated in

Pakistan on October 9, 1991, as a Public Limited Company.

1992 Formation of Soneri Bank Limited.

Formation of Askari Commercial Bank Limited.

Formation of Bank Al-Falah Limited.

Formation of Union Bank.

In Nepal HBL acquired 20% of Himalayan Bank.

Bank Alfalah was incorporated on June 21, 1992 as a public limited company

under the Companies Ordinance 1984.

Habib Metropolitan Bank was incorporated in Pakistan as a Public Listed

Company in 1992 under the name, Metropolitan Bank Limited.

1993 Allied Bank Modaraba (FABM) was floated.

41 | P a g e

The National Institute of Business and Finance (NIBAF) was set up on 8 March

1993 as a 'Private Limited Company by Guarantee' and was sponsored by the

erstwhile Pakistan Banking Council (PBC) in collaboration with National Bank of

Pakistan, Habib Bank Limited, United Bank Limited, Muslim Commercial Bank

and Allied Bank Limited.

1994 Formation of KASB Bank Limited.

Formation of Bank of Khyber.

NBP amalgamated Mehran Bank.

In February 1994, the State Bank was given full autonomy, during the financial

sector reforms.

The Bank of Punjab was given the status of retail bank.

1995 Faysal Bank was incorporated.

Formation of Platinum Commercial Bank.

HBL established a representative office in Cairo.

1997 NBP's branch in Ashgabat, Turkmenistan commenced operations.

State Bank of Pakistan took over the assets and liabilities of PBC and purchased

assets of NIBAF(National Institute of Business and Finance).

Amendments in SBP Act 1956.

Amendments in Banking Companies Ordinance 1962.

Amendments in Banks Nationalization Act 1974.

Full authority to SBP for regulating banking sector, conducting indecent

monitory policy and setting limits on governments borrowings from SBP.

2000 HBL established Habib Canadian Bank.

NBP opened a representative office in Almaty, Kazakhstan.

Merger of Bank of America into Union Bank.

2001 Amalgamation of SBFC & RDFC into SME Bank.

Merger of NDFC into NBP.

Acquisition of Gulf Commercial Bank by PICIC as subsidary.

Acquisition of Prudential Commercial Bank by Saudi Pak Commercial Bank.

42 | P a g e

Formation of Pakistan International Bank with 45% shares with NBP and 55%

shares with UBL to work in UK as agreed between SBP and Bank of England.

2002 Formation of Meezan Bank Limited.

Merger of Faysal Investment Bank into Faysal Bank.

Merger of Societe Generale into Meezan Bank.

Merger of Emirates International Bank into Union Bank.

Acquisition of Platinum Commercial Bank by Khadin Ali Shah & Co.

Merger of Standard Chartered Grindlays Bank into Standarad Chartered Bank.

Pakistan's Privatization Commission announced that the Government of Pakistan

had granted the Aga Khan Fund for Economic Development (AKFED), a

subsidiary of the Aga Khan Development Network, rights to 51% of the

shareholding in HBL, against an investment of PKR 22.409 billion (USD 389

million).

The Government of Pakistan sold UBL in an open auction to a consortium of Abu

Dhabi Group and Bestway Group.

2003 Merger of KASB(non-securities section) with KASB Bank(formerly Platinum

Commercial Bank)

Merger of Mashreqbank & Crescent Investment Bank into Mashreqbank Pakistan

Limited

Merger of NDLC and IFIC Bank with and into NDLC-IFIC Bank

Merger of KASB Leasing with KASB Bank

HBL received permission to open a branch in Afghanistan.

2003 NBP received permission to open a branch in Afghanistan.

The NIB Bank Limited (formerly NDLC-IFIC Bank Limited) was incorporated in

March 2003 as a publicly listed company.

2004 Formation of Crescent Commercial Bank Limted.

On February 26, the Government of Pakistan handed over management control

of Habib Bank to AKFED. The Board of Directors was reconstituted to have four

AKFED nominees, including the Chairman and the President/CEO and three

Government of Pakistan nominees.

43 | P a g e

Merger of Ceylon-Pakistan Operations with and into Dawood Bank Limited

Acquisition of Bolan Bank by Iqbal Alimohammed Group

Merger of Trust Inv. Bank Ltd., Fidelity Inv.Bank Ltd., and Doha Bank with and

into Trust Com.Bank Ltd.

Merger of Trust Commercial Bank with and into Crescent Commercial Bank Ltd.

Merger of Credit Agricole Indosuez with NIB

In August 2004 as a result of capital reconstruction, the Bank’s ownership was

transferred to a consortium comprising Ibrahim Leasing Limited and Ibrahim

Group.

2005 Formation of My Bank Limited.

Formation of Dubai Islamic Bank (Pakistan) Limited.

Formation of Arif Habib Rupali Bank Limited.

2005 NBP closed its offshore branch in Cairo.

In May 2005 Ibrahim Leasing Limited was amalgamated by transfer to and

vested in with and into Allied Bank Limited. ILL shareholders were issued ABL

shares in lieu of the ILL shares held by them.

Merger of Ibrahim Leasing Limited with Allied Bank Ltd.

Merger of Majority shares of Dawood Bank Limited by Atlas Group

In 2005, Bank AL Habib began offering internet banking so accounts and records

could be viewed online.

My Bank was launched during June 2005 as a public limited company under the

Companies Ordinance 1984

2006 HBL sold the operations that it had established in Fiji in 1991 to Bank of South

Pacific.

In 2006, Bank AL Habib became partners with MasterCard allowing them to issue

credit cards for the first time.

Merger of Atlas Investment bank with and into Atlas Bank Limited.

Merger of Rupali bank with and into Arif Habib Rupali Bank Limited.

Merger of First Allied Modaraba Limited with and into Allied Bank Limited.

Acqusition of majority shares of Union Bank by Standard Chartered Bank

44 | P a g e

(Pakistan) Limited.

Merger of Habib AG Zurich Pakistan operation with and into Habib Metropolitan

Bank.

Merger of American Express Bank and Jahangir Siddiqui Investment Bank

Limited with and into JS Bank Limited.

Merger of Standard Chartered Bank-Pakistan operations and Union Bank Limited

with & into Standard Chartered Bank (Pakistan) Ltd.

Merger of Investment Corporation of Pakistan with and into Industrial

Development Bank of Pakistan

Formation of JS Bank Limited

2007 Acquisition of majority shares of Crescent Commercial Bank Ltd. by SAMBA

Financial Group

Acquisition of Prime Commerical Bank by ABN Amro Bank and named as ABN-

Amro Bank (Pakistan) Ltd.

Formation of Emirates Global Islamic Bank Limited.

Formation of Dawood Islamic Bank Limited.

2008 In October, 2008, Atlas Bank was acquired by the KASB group. The new bank was

named KASB-Atlas Bank.

2009 HBL was granted permission to open Remnibi accounts in China. It already has

training and shareholding arrangements with Urumqi Commercial Bank.

45 | P a g e

Major Player’s Profiles

30-Jun-08 31-Dec-08

Ranking Bank Bank branches Deposits Assets EPS

1 Habib Bank 1,450 597,090,545,000 757,928,389,000 115

2 National Bank 1,245 624,939,016,000 817,758,326,000 180

3 United Bank 1,082 483,560,062,000 605,072,482,000 80

4 MCB 1,025 330,274,155,000 443,615,904,000 240

Source: HBL Annual Report, NBP Annual Report, UBL Annual Report, MCB Annual Report 2008

Table 8: Bank Rankings

Figure 3: Branch Percentages

Thus looking at the information given above, the three major players that we took are:

Habib Bank Limited (HBL)

National Bank of Pakistan (NBP)

United Bank Limited (UBL)

46 | P a g e

Habib Bank Limited (HBL)

Habib bank was established on August 25th, 1941, even before Pakistan came into being on the map

of the world.

Location of Head Offices and Principal Offices:

HBL has the largest domestic branch network with over 1,400 branches. Its principal offices are:

The Head Office is located as:

Head Office

Habib Bank Plaza

I.I.Chundrigar Road

Karachi-75650, Pakistan.

Phone: 021-2418000 (50 lines)

Fax: 021-9217511

The Registered Office is located as:

Registered Office

4th Floor, Habib Bank Tower

Jinnah Avenue

Islamabad, Pakistan.

Phone: 051-2872203 & 051-281183

Fax: 051-28722052

Impact on Pakistani Banking Industry

Habib Bank Limited is commonly referred to as "HBL" and head-quartered in Habib Bank Plaza,

Karachi, Pakistan, it is the largest bank in Pakistan. The bank has a network of over 1450 branches

in Pakistan and 55 branches worldwide. It has a domestic market share of over 40%. It continues to

dominate the commercial banking sector with a major market share in inward foreign remittances

(55%) and loans to small industries, traders and farmers.

47 | P a g e

Services and Products

Car To Car

Car Loan

Credit Cards

Deposit Accounts

Bancassurance

Debit Card

Phone Banking

Mutual Funds

Historical Highlights of HBL

1951 HBL opened the first of 3 branches in Sri Lanka.

1952 HBL established Habib Bank (Overseas).

1956 HBL opened first of 5 branches in Kenya.

1957 or 1958 HBL opened a branch in Aden.

1961 HBL opened the first of what would become 6 branches in the UK.

1964 HBL opened the first of 4 branches in Mauritius and a branch in Beirut.

1966 HBL opened the first of 8 branches in the UAE.

1969 HBL opened first of 3 branches and an OBU in Bahrain. HBL’s branch in Aden is

nationalized.

1971 HBL opened an OBU in Singapore and a branch in New York.

1972 HBL opened the first of 11 branches in Oman. HBL constructed Habib Bank Plaza in

Karachi to commemorate the bank’s 25th Anniversary.

1974 The government of Pakistan nationalized HBL and HBL merged with Habib Bank

(Overseas).

1975 HBL opened a branch in Belgium. HBL also merged with Standard Bank, a Pakistani

bank.

1976 HBL opened a branch in the Seychelles, the first of two branches in Bangladesh, and a

branch in the Maldives.

1979 HBL opened a branch in the Netherlands.

48 | P a g e

1980 HBL opened a branch in Paris and in Hong Kong.

1981 HBL established Nigeria Habib Bank with 40% ownership. HBL also opened a

representative office in Teheran.

1982 HBL opened a branch in Khartoum.

1983 HBL opened branch in the Karachi EPZ and a branch in Istanbul.

1984 HBL established Habib American Bank in New York with a branch each in Manhattan

and Queens, and a US International Banking Facility. HBL also opened a branch in California.

1987 HBL opened in Australia.

1991 The Habib Group established a separate private bank, the Bank AL Habib, after private

banking was re-established in Pakistan. HBL opened a branch in the Fiji Islands, and took

over the Paksistani branches of failed bank, BCCI.

1992 In Nepal HBL acquired 20% of Himalayan Bank.

1995 HBL established a representative office in Cairo.

1990s HBL established Habib Finance (Australia), and Habib Finance International Limited,

Hong Kong.

2000 HBL established Habib Canadian Bank.

2002 On June 13, 2002 Pakistan's Privatization Commission announced that the

Government of Pakistan had granted the Aga Khan Fund for Economic Development

(AKFED), a subsidiary of the Aga Khan Development Network, rights to 51% of the

shareholding in HBL, against an investment of PKR 22.409 billion (USD 389 million).

HBL's UK operation came close to being shut down due to regulatory issues with the

Financial Services Authority. The issue was resolved by converting the operations to a

subsidiary. Then Habib Bank Limited and Allied Bank of Pakistan merged their operations

(Habib contributed its 6 branches and Allied its 4), into a new bank, called Habib-Allied

International Bank, in which Habib Bank has a 90.5 percent shareholding, while Allied Bank

has 9.5 percent. Simultaneously with the transfer of business to the new bank, both Allied

and Habib Bank close down all independent operations in the UK.

2003 HBL received permission to open a branch in Afghanistan.

2004 On February 26, the Government of Pakistan handed over management control of

Habib Bank to AKFED. The Board of Directors was reconstituted to have four AKFED

49 | P a g e

nominees, including the Chairman and the President/CEO and three Government of

Pakistan nominees.

2006 HBL sold the operations that it had established in Fiji in 1991 to Bank of South Pacific.

2009 HBL was granted permission to open Remnibi accounts in China. It already has

training and shareholding arrangements with Urumqi Commercial Bank

Source: Corporate Information of HBL

Figure 4: Habib Bank Corporate Information

50 | P a g e

National Bank of Pakistan (NBP)

In the year 1949 National Bank of Pakistan (NBP) was established under the National Bank of

Pakistan Ordinance 1949 and was government-owned. NBP acted as an agent of the central bank

wherever the State Bank did not have its own branch. It also undertook government treasury

operations. Its first branches were in jute growing areas in East Pakistan. Offices in Karachi and

Lahore followed.

NBP headquarters in Karachi, Pakistan with over 1,200 branches country wide. The bank provides

both commercial and public sector banking services.

Services and Products

NBP Premier Amdani

PLS Saving Account

NBP Karobar (Mera apna karobar)

NBP Saiban (Home Financing)

Personal Loan

ATM +Debit Card

Financing Facility for Stock Investors

Ready Cash against Gold

Agriculture Farming Program

Personal Accident Insurance

National Bank of Pakistan has got the second largest Banking Network in Pakistan with over 1200

branches in both rural and urban areas of Pakistan. Similarly, NBP’s Assets and Deposits are the

second largest in Pakistan. The Earning per share and the Dividends per share have been rising

over the past few years, which shows the sign of progress.

NBP’s contribution in the development of small and medium size entrepreneurs is significant. It is

credited with introducing such innovative schemes as People's Credit Scheme (1960), supervised

agricultural credit programme (1972) and educational loans on compassionate grounds.

51 | P a g e

Historical Highlights of NBP

1949 National Bank of Pakistan (NBP) was established under the National Bank of Pakistan

Ordinance 1949 and was government-owned. NBP acted as an agent of the central bank

wherever the State Bank did not have its own branch. It also undertook government

treasury operations. Its first branches were in jute growing areas in East Pakistan. Offices in

Karachi and Lahore followed.

1950 NBP established a branch in Jeddah, Saudi Arabia.

1955 By this time NBP had branches in London and Calcutta.

1957 NBP established a branch in Baghdad, Iraq.

1962 NBP established a branch in Dar-es-Salaam, Tanganyika.

1964 The Iraqi government nationalized NBP's Baghdad branch.

1965 The Indian government seized the Calcutta branch on the outbreak of hostilities

between India and Pakistan.

1967 The Tanzanian government nationalized the Dar-Es-Salaam branch.

1971 NBP acquired Bank of China's two branches, one in Karachi and one at Chittagong. At

separation of East Pakistan NBP lost its branches there. NBP merged with Eastern

Mercantile Bank and with Eastern Bank Corporation.

1974 The government of Pakistan nationalized NBP. As part of the concomitant

consolidation of the banking sector, NBP acquired Bank of Bahawalpur.

1977 NBP opened an offshore brain Cairo.

1994 NBP amalgamated Mehran Bank.

1997 NBP's branch in Ashgabat, Turkmenistan commenced operations.

2000 NBP opened a representative office in Almaty, Kazakhstan.

2001 State Bank of Pakistan and Bank of England agree to allow only 2 Pakistani banks to

operate in the UK. NBP and United Bank agreed to merge their operations to form Pakistan

International Bank, of which NBP would own 45% and United Bank 55%.

2002 Pakistan International Bank renamed itself United National Bank Limited (UNB). The

ownership structure of the UNB remained as before. The only change to the shareholding

structure is that UNB had recently been privatized in Pakistan and was now owned 49% by

the Government of Pakistan and 51% by a joint foreign consortium of Abu Dhabi.

52 | P a g e

2003 NBP received permission to open a branch in Afghanistan.

2005 NBP closed its offshore branch in Cairo.


NBP acts as an agent in absence of the State Bank of Pakistan and shows great zeal towards

development of small and medium enterprises. NBP has the second largest banking network in

Pakistan, with 1245 branches and 16.42 m employees. National Bank of Pakistan is the largest

commercial bank operating in Pakistan. Its balance sheet size surpasses that of any of the other

banks functioning locally. It has redefined its role and has moved from a public sector organization

into a modern commercial bank. The Bank's services are available to individuals, corporate entities

and government. While it continues to act as trustee of public funds and as the agent to the State

Bank of Pakistan (in places where SBP does not have a presence) it has diversified its business

portfolio and is today a major lead player in the debt equity market, corporate investment banking,

retail and consumer banking, agricultural financing, treasury services and is showing growing

interest in promoting and developing the country's small and medium enterprises and at the same

time fulfilling its social responsibilities, NBP headquarters in Karachi, Pakistan with over 1,200

branches country wide. The bank provides both commercial and public sector banking services. It

has assets worth USD 12.293 billion in 2007.

Source: Corporate Information of NBP

Figure 5: NBP Corporate Information

53 | P a g e

United Bank Limited (UBL)

United Bank Limited was first established on November 07, 1959, with a total capital of Rs. 30

million. The quick growth of UBL was due to the fact that UBL was the first bank in Pakistan to

introduce professional management, computers, economic and business research, latest managerial

practices and customer orientation.

Main head office and registered office of United Bank Limited (UBL) are:

Head Office

State Life Insurance Corp. Building #1,

I.I. Chundrigar Road, Karachi, Pakistan

P.O. Box No.: 4306

Phone: (92-21) 111-825-111

Gram: "UNITED"

Fax: (92-21) 2413492

Registered Office

13 Floor, UBL Building,

Jinnah Avenue, Blue Area Islamabad, Pakistan

Products and Services

Even if you are an individual or a small-medium-sized business, UBL has a lot to offer. UBL offers

the largest product portfolio, as well as efficient personalized banking services to meet all of its

customer’s needs. UBL is driven by customer service, and it aims at managing elevated standards.

Deposits and Commercial Products

UBL Business Partner – Current Account

Rupee Transactional Account (RTA) – Pls Saving Account

UBL Profit – Certificate of Deposit (COD)

UBL Uniflex

UBL Unisaver

Foreign Currency Savings

Foreign Currency Term Deposits Receipts

Regular Term Deposits Receipts

54 | P a g e

Special Notice Deposits Receipts

UBL Basic Banking Account

Additional Services & Information

Cards and Loans

UBL Credit Card – Chip Credit Card

UBL Wiz – Pakistan’s First Prepaid Visa debit Card

UBL Wallet – Visa ATM Debit Card

UBL Address – Home Loan Facility

UBL Businessline – Business Financing Loan

UBL Cashline – Running Finance Facility

UBL Drive – Auto Loan

UBL Agricultural and nbsp Loan

UBL Small Business – SME Loan

55 | P a g e


UBL has had a strong impact on Pakistani Banking Industry. From the use of better technology, UBL

has focused on the appropriate market segment, and project that will facilitate rapid and

sustainable growth. Consumer service and prompt attention to customer needs lie at the heart of

UBL’s strategy. As consumer’s satisfaction is UBL’s first priority, UBL has started training

programmes that will upgrade and accelerate staff’s knowledge, and help them increase their skills.

UBL is an upbeat and growth-oriented institution thus they are always eager to fulfill their social

responsibilities. UBL employed over 15,000 employees in 2008.

Source: Corporate Information of UBL

Figure 6: UBL Corporate Information

56 | P a g e

Collective Action Agents

Pakistan Banks’ Association (PBA) represents the Pakistan Banking Industry. Its main objective is

to coordinate the efforts of the banking industry, and to share a common vision of progress and

development with its members.

Pakistan Banks’ Association was constituted as a Private Limited Company on 31st March 1953.

Its Principal office is in Karachi. (D-126 (Near Chinese Consulate), Block 4, Clifton, Karachi,

Pakistan).

PBA Membership is institutionalized and is available only to the Banks operating in Pakistan.

Currently there are 48 members, categorized into 6 groups (one of these groups is under

formation). Its governing body is an Executive Committee (EC) comprising of 14 members,

represented by the Chief Executives of the respective member institutions. PBA’s Principal

Executive is the Chairman of the Executive Committee, elected periodically from within the EC.

Presently, PBA has 10 functional Sub Committees, each chaired by a member of the Executive

Committee. Remaining members of the Sub Committees are relevant Executives of member banks.

Over the years the role of PBA has broadened considerably. It is now referred to by the State Bank

of Pakistan in formulation of regulations for the banking industry, and has been entrusted with the

function of regulating and monitoring certain services provided to the banking industry by outside

service providers. These service providers include ‘Professional Valuers’, who are evaluators

allowed to appraise the values of assets collateralized to banks, and Security Agencies offering

security services to the Banking Industry.

PBA membership is open to the Financial Institutions operating in Pakistan. It currently has 48

members. The members are broadly categorized into following six groups:

Nationalized Commercial Banks and Government Owned Banks

Privatized Banks

Development Financial Institutions

Small and Medium Enterprise (group under formation)

Private Banks

Foreign Banks

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Following financial institutions are the members of Pakistan Banks' Association.

Government Owned Banks:

First Women Bank Limited

Industrial Development Bank of Pakistan

Khushhali Bank Limited

National Bank of Pakistan

SME Bank Limited

The Bank of Khyber

The Bank of Punjab

The Punjab Provincial Cooperative Bank Limited

Zarai Taraqiati Bank Limited

Privatized Banks:

Allied Bank Limited

Habib Bank Limited

MCB Bank Limited

United Bank Limited

Development Financial Institutions:

House Building Finance Corporation

National Investment Trust Limited

Pak Brunei investment Company Limited

Pak Kuwait Investment Company (Pvt.) Limited

Pak Libya Holding Company (Pvt.) Limited

Pak Oman Investment Company Limited

Saudi Pak Industrial & Agricultural Investment Company Limited

Small and Medium Enterprise (PBA subgroup under formation):

The First MicroFinanceBank Limited Pakistan

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Private Banks:

Atlas Bank Limited Arif Habib Bank Limited

Askari Bank Limited

Bank Alfalah Limited

Bank AL Habib Limited

BankIslami Pakistan Limited

Barclays Bank PLC, Pakistan

Dawood Islamic Bank Limited

Dubai Islamic Bank Pakistan Limited

Emirates Global Islamic Bank Limited

Faysal Bank Limited

Habib Metropolitan Bank Limited

JS Bank Limited

KASB Bank Limited

Meezan Bank Limited

mybank Limited

NIB Bank Limited

Samba Bank Limited Formerly Crescent Commercial Bank Limited

Silkbank Limited Formerly Saudi Pak Commercial Bank Limited

Soneri Bank Limited

Standard Chartered Bank (Pakistan) Limited

The Royal Bank of Scotland Limited Formerly ABN Amro Bank (Pakistan) Limited

Foreign Banks:

Al Baraka Islamic Bank B.S.C. (E.C.), Pakistan

Citibank N.A., Pakistan

Deutsche Bank AG, Pakistan

HSBC Bank Middle East Limited, Pakistan

Oman International Bank S.O.A.G., Pakistan

Events:

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SBP 60th Anniversary – Development Finance Conference

DFSD Inter Provincial Agricultural Workshop

DFSD Workshop Proceedings

IBD - Seminar on Islamic Financial Accounting Standards 1 & 2

SBP- Mortgage Training Program on Housing Finance

IBP - CALL FOR PAPERS - Third International Conference on Islamic Banking and

Finance: Risk Management, Regulation and Supervision

A Half–Day Workshop on “BASEL II”

Seminar on BASEL II ACCORD

IInd SBP International Conference 18-19 December at LRC

BSD-A Half Day Workshop on "Stress Testing"

Seminar on Agribusiness Finance Awareness Building

Public Auction for the sale of partially damaged furniture/ scrap/ disposable

material

Two Days Workshop on Collaboration Among Data Compilers and Users (July 25-26,

2006, Islamabad)

IInd SBP International Conference on Fixed Income Market Development in

Emerging Market Economies: Call for Papers

BSD - One-Day Conference on Corporate Governance in Banks

Two Days Workshop on Collaboration Among Data Compilers and Users

Expo 2006 Investment Conference

SBP Conference 14-15 Nov. 2005

BPD - Conference on SME Financing - Issues and Strategies

BPD - International Seminar on Anti-Money Laundering

60 | P a g e

World Trade Organization

WTO Regulations and Its Impact on Pakistan Banking

Industry

Speaking of this organization in general, WTO has an ocean of responsibilities to attend to;

however, the pool can be categorized into two broad segments:

a) General Obligations, which apply directly and automatically to all members and service

sectors, as well as commitments concerning market access and national treatment in sector

niches.

b) Specific Obligations, relating to certain sectors.

GENERAL OBLIGATIONS:

i. Most-Favored Nation (MFN) Treatment:

Members are held to extend immediately and unconditionally to services or services suppliers of all

other Members “treatment no less favorable than that accorded to like services and services

suppliers of any other country”.

Under this agreement all the members of the WTO are required to treat all the other member on the

non-discriminatory basis. Thus if any country extends any special favor; like low customs duty or

tax rates etc, to any country, then, the same treatment shall be done with all the member countries

of WTO.

ii. Transparency:

GATS Members are required to publish all measures of general application and establish national

enquiry points mandated to respond to other Member's information requests.

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SPECIFIC OBLIGATIONS:

Obligations covering this head are:

i. Market Access:

This implies limitations that might be imposed on the number of services suppliers, service

operations or employees in the sector, the value of transactions, the legal form of the service

supplier or the participation of foreign capital.

ii. National Treatment:

A commitment to national treatment implies that the Member concerned does not operate

discriminatory measures benefiting domestic services or service suppliers. The key requirement is

not to modify, in law or in fact, the conditions of competition in favour of the Member's own service

industry.

Members are free to tailor the sector coverage and substantive content of such commitments as

they see fit.

IMPACT ON PAKISTAN BANKING INDUSTRY:

Technology plays a vital role in introducing new ways of doing business by the financial sector. In

the last few years, Government of Pakistan struggled and strived to meet most of the requirements

put forth in GATT or by WTO. Furthermore, Pakistan has also undertaken institutional changes to

improve policy coordination on WTO matters as well as governance.

The strengthening of the Ministry of Commerce with the establishment of a WTO-cell as well as the

establishment of a WTO Council to look into the effect of WTO-related policies on trade and

production can be seen as another example of Pakistan strong commitment to the WTO process and

the multilateral trading system.

Pakistan has conducted reduction and simplification of its tariff schedules, which have resulted in

the average applied MFN tariff rate falling from 56% in 1993/94 to 20.4% in 2001/02. However,

being the Government’s major source of tax revenues tariff protection is relatively still high in

particular on a few sensitive items, with the existence of some tariff peaks.

Pakistan has taken up commitment under the GATS. Pakistan’s Schedule of specific Commitment

covers 47 activities within the financial, business, communications, construction/engineering,

62 | P a g e

health, and tourism/travel. During the period under reviews Pakistan have taken various steps to

liberalize and strengthen the services sector, including financial services and telecommunications,

but several barriers remain.

Despite the many difficulties faced by the country, it is however encouraging to see Pakistan’s

continued strong commitment towards the multilateral trading system and honor its commitments

under the WTO Agreements. Pakistan has resisted to protectionist policies and has opted out to

undertake market reform, liberalizing many sectors of its economy, in its efforts to boost economic

performance. The continued full implementation of the Revival Programme, which has shown some

sign of success, is expected to bring long-term economic growth.

In its effort to comply with the WTO Agreement on Trade-Related Intellectual Property Rights

(TRIPS), Pakistan has amended its legislation to implement TRIPS obligations on patents, trade

marks, layout designs of integrated circuits and copyright.

International Treaties and their impact:

The risks and problems associated with deregulated financial flows are increasingly evident,

several multilateral institutions—including the IMF, the World Trade Organization (WTO), and the

Organization for Economic Cooperation and Development (OECD)— are currently negotiating new

agreements that would open more markets to multinational banks (MNB) on an even broader scale

than previous regional agreements, such as the North American Free Trade Agreement (NAFTA)

and the Asia Pacific Economic Cooperation (APEC) forum. The explicit purpose of the proposed

rules is to create legal, political, and economic frameworks that would make it virtually impossible

for governments to impose controls on international capital. For example, the IMF intends to amend

its articles so that member countries would be required to obtain permission from the IMF to

introduce capital controls; the WTO is negotiating a new agreement called the General Agreement

on Trade in Services (GATS) to liberalize service sectors, including banking; and the OECD is

negotiating a Multilateral Agreement on Investment (MAI), which would substantially increase the

rights of international lenders and multinational banks.

63 | P a g e

Impact on Pakistan

In addition to the former, Government of Pakistan made several amendments in its attempt to

improve, amongst which the most visible are:

Foreign banks have been allowed to undertake business by setting up locally incorporated

subsidiary with 49% foreign equity.

Other eligibility criteria including minimum capital requirement, is the same as domestic

commercial banks.

Foreign banks are allowed up to 3 branches at the place of their choice.

Investment in shares of existing domestic banks is permitted to foreign nationals/IFIs for

trading purposes.

Representation of foreign nationals on the board of directors has been allowed in

proportion to their share holdings.

Employment of foreign nationals in banks and financial institutions operating in Pakistan

requires prior clearance of SBP.

Foreign banks are allowed to setup joint ventures with local persons with equity

participation up to 51%.

Transmission of permissible funds, including foreign currency, can be effected through

authorized banking channels.

All commercial banks are required to be members of the clearing system

operated/approved by SBP.

Foreign leasing companies are permitted to setup subsidiary leasing business with

maximum total share holding of 51%.

Foreign licensed entities are allowed to undertake portfolio management services by setting

up locally incorporated subsidiaries with 51%share holding.

Prior written permission is required by SBP for any person holding more than 5%of paid up

capital of any bank

IMPACT ON CHINA – MUCH WORK REQUIRED

The Chinese banking system is being encouraged to develop new revenue streams such as online

banking in order to make this sector more competitive. The Central Bank of China is stepping up its

64 | P a g e

efforts to improve its legal framework in preparation for changes to the financial landscape. Major

Fields the government of China is promoting for both domestic and foreign investment includes

infrastructure facilities - environmental protection – education – manufacturing – services -

tourism and entertainment industries. The consumer market in China is expanding rapidly. This

growth is further evidenced by the expanding ownership of computers, cell phones and cars. While

many Canadian companies have explored the Chinese market over the last twenty years there are

few real success stories. With the changes that entry into the WTO will bring about in the Chinese

economy it is opportune for Canadians to take another look. One of the keys to success in China is to

work in collaboration with a Chinese partner and with the emphasis on increasing their own

competitiveness Chinese organizations are actively seeking out foreign business partners who can

bring investment, technology and marketing expertise to the venture.

Banks have historically been the principal provider of financing for enterprises and the primary

choice for the deposit of domestic savings. Bank loans accounted for 82% of total financing in 2006

with the remaining 18% raised through bond and equity issuances. The principal source for

commercial banks' assets has always been household savings, which in 2006 represented about

48% of total deposits in banking institutions.

China's banking sector has grown rapidly in recent years. Between 2003 and 2006, total banking

assets grew at an average of around 17% annually. By end 2006, total bank assets were Y 43.95

trillion, up by Y 6.48 trillion over 2005. About 55% of the banks' assets are held by the Big Four

SOCBs, while the 12 joint-stock commercial banks and the RCCs account for 12% and 8% of total

bank assets.

In general, commercial banks in China are prohibited from making domestic investments other

than in debt instruments issued by the Government and financial institutions, commercial paper

and corporate bonds issued by qualified non-financial institutions, and certain derivative products.

Unless otherwise specifically decided by the State Council, commercial banks are prohibited, in

China, from engaging in trust investment business, securities operations, investing in real estate

other than for their own use, and making equity investments in non-banking financial institutions

and entities. Commercial banks cannot supply financial leasing services directly, but by establishing

a separate subsidiary.

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BANKING IN NORWAY: BETTER

Since Norway's last Review, its financial sector has expanded considerably. Insurance legislation

has undergone significant revisions. Norway's GATS commitments cover the full spectrum of

financial services.

Norway's GATS market access and national treatment commitments cover the full spectrum of

financial services. These commitments are undertaken in accordance with the Understanding on

Commitments on Financial Services.

Banks operating in Norway may not carry on or participate as a partner or owner in wholesale and

retail trade, manufacturing, shipping, insurance or other business activity in Norway, except an

activity which it is customary or natural for banks to transact.

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General Agreement on Trade and Services – WTO

Article-I

Scope and Definition

1. This Agreement applies to measures by Members affecting trade in services.

2. For the purposes of this Agreement, trade in services is defined as the supply of a service:

(a) from the territory of one Member into the territory of any other Member;

(b) in the territory of one Member to the service consumer of any other Member;

(c) by a service supplier of one Member, through commercial presence in the territory of

any other Member;

(d) by a service supplier of one Member, through presence of natural persons of a Member in the

territory of any other Member.

3. For the purposes of this Agreement:

(a) "measures by Members" means measures taken by:

(i) central, regional or local governments and authorities; and

(ii) non-governmental bodies in the exercise of powers delegated by central, regional or local

governments or authorities; In fulfilling its obligations and commitments under the Agreement,

each Member shall take such reasonable measures as may be available to it to ensure their

observance by regional and local governments and authorities and non-governmental bodies

within its territory;

(b) "services" includes any service in any sector except services supplied in the exercise of

governmental authority;

(c) "a service supplied in the exercise of governmental authority" means any service which

is supplied neither on a commercial basis, nor in competition with one or more service

suppliers.

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ANNEX ON FINANCIAL SERVICES

1. Scope and Definition

(a) This Annex applies to measures affecting the supply of financial services. Reference to the

supply of a financial service in this Annex shall mean the supply of a service as defined in paragraph

2 of Article I of the Agreement.

(b) For the purposes of subparagraph 3(b) of Article I of the Agreement, "services supplied in the

exercise of governmental authority" means the following:

(i) Activities conducted by a central bank or monetary authority or by any other public entity in

pursuit of monetary or exchange rate policies;

(ii) Activities forming part of a statutory system of social security or public retirement plans; and

(iii) other activities conducted by a public entity for the account or with the guarantee or using the

financial resources of the Government.

(c) For the purposes of subparagraph 3(b) of Article I of the Agreement, if a Member allows any of

the activities referred to in subparagraphs (b)(ii) or (b)(iii) of this paragraph to be conducted

by its financial service suppliers in competition with a public entity or a financial service supplier,

"services" shall include such activities.

(d) Subparagraph 3(c) of Article I of the Agreement shall not apply to services covered

by this Annex.

2. Domestic Regulation

(a) Notwithstanding any other provisions of the Agreement, a Member shall not be prevented from

taking measures for prudential reasons, including for the protection of investors, depositors, policy

holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the

integrity and stability of the financial system. Where such measures do not conform with the

provisions of the Agreement, they shall not be used as a means of avoiding the Member's

commitments or obligations under the Agreement.

(b) Nothing in the Agreement shall be construed to require a Member to disclose information

relating to the affairs and accounts of individual customers or any confidential or proprietary

information in the possession of public entities.

3. Recognition

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(a) A Member may recognize prudential measures of any other country in determining how the

Member's measures relating to financial services shall be applied. Such recognition, which may be

achieved through harmonization or otherwise, may be based upon an agreement or arrangement

with the country concerned or may be accorded autonomously.

(b) A Member that is a party to such an agreement or arrangement referred to in subparagraph (a),

whether future or existing, shall afford adequate opportunity for other interested Members to

negotiate their accession to such agreements or arrangements, or to negotiate comparable ones

with it, under circumstances in which there would be equivalent regulation, oversight,

implementation of such regulation, and, if appropriate, procedures concerning the sharing of

information between the parties to the agreement or arrangement. Where a Member accords

recognition autonomously, it shall afford adequate opportunity for any other Member to

demonstrate that such circumstances exist.

(c) Where a Member is contemplating according recognition to prudential measures of any other

country, paragraph 4(b) of Article VII shall not apply.

4. Dispute Settlement

Panels for disputes on prudential issues and other financial matters shall have the necessary

expertise relevant to the specific financial service under dispute.

5. Definitions

For the purposes of this Annex:

(a) A financial service is any service of a financial nature offered by a financial service supplier of a

Member. Financial services include all insurance and insurance-related services, and all banking

and other financial services (excluding insurance). Financial services include the following

activities:

Insurance and insurance-related services

(i) Direct insurance (including co-insurance):

(A) life

(B) non-life

(ii) Reinsurance and retrocession;

(iii) Insurance intermediation, such as brokerage and agency;

(iv) Services auxiliary to insurance, such as consultancy, actuarial, risk assessment and claim

settlement services.

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Banking and other financial services (excluding insurance)

(v) Acceptance of deposits and other repayable funds from the public;

(vi) Lending of all types, including consumer credit, mortgage credit, factoring and financing of

commercial transaction;

(vii) Financial leasing;

(viii) All payment and money transmission services, including credit, charge and debit cards,

traveler’s cheques and bankers drafts;

(ix) Guarantees and commitments;

(x) Trading for own account or for account of customers, whether on an exchange, in an over-the-

counter market or otherwise, the following:

(A) money market instruments (including cheques, bills, certificates of deposits);

(B) foreign exchange;

(C) derivative products including, but not limited to, futures and options;

(D) exchange rate and interest rate instruments, including products such as swaps, forward rate

agreements;

(E) transferable securities;

(F) other negotiable instruments and financial assets, including bullion.

(xi) Participation in issues of all kinds of securities, including underwriting and placement as agent

(whether publicly or privately) and provision of services related to such issues;

(xii) Money broking;

(xiii) Asset management, such as cash or portfolio management, all forms of collective investment

management, pension fund management, custodial, depository and trust services;

(xiv) Settlement and clearing services for financial assets, including securities, derivative products,

and other negotiable instruments;

(xv) Provision and transfer of financial information, and financial data processing and related

software by suppliers of other financial services;

(xvi) Advisory, intermediation and other auxiliary financial services on all the activities listed in

subparagraphs (v) through (xv), including credit reference and analysis, investment and portfolio

research and advice, advice on acquisitions and on corporate restructuring and strategy.

(b) A financial service supplier means any natural or juridical person of a Member wishing

70 | P a g e

to supply or supplying financial services but the term "financial service supplier" does not include a

public entity.

(c) "Public entity" means:

(i) a government, a central bank or a monetary authority, of a Member, or an entity owned or

controlled by a Member, that is principally engaged in carrying out governmental functions or

activities for governmental purposes, not including an entity principally engaged in supplying

financial services on

commercial terms; or

(ii) a private entity, performing functions normally performed by a central bank or monetary

authority, when exercising those functions.

SECOND ANNEX ON FINANCIAL SERVICES

1. Notwithstanding Article II of the Agreement and paragraphs 1 and 2 of the Annex on Article II

Exemptions, a Member may, during a period of 60 days beginning four months after the date of

entry into force of the WTO Agreement, list in that Annex measures relating to financial services

which are inconsistent with paragraph 1 of Article II of the Agreement.

2. Notwithstanding Article XXI of the Agreement, a Member may, during a period of 60 days

beginning four months after the date of entry into force of the WTO Agreement, improve, modify or

withdraw all or part of the specific commitments on financial services inscribed in its Schedule.

3. The Council for Trade in Services shall establish any procedures necessary for the application of

paragraphs 1 and 2.

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Economic Impact of WTO

Economic Impact of WTO in Pakistan

The government improved its financial services commitments in the WTO Financial Services

Agreement in December 1997. These commitments grant the right to establish new banks, as well

as grandfathering acquired rights of established foreign banks and foreign securities firms. The

State Bank of Pakistan has changed its branch licensing policy, and has eliminated restrictions on

the number of branches for foreign banks. Currently foreign banks, like local banks, have to submit

an annual branch expansion plan to the SBP for approval. The SBP approves new branch openings

based on the bank’s net worth, adequacy of its capital structure, future earnings prospects, credit

disciplines, and the needs of the local population. Foreign brokers, like their Pakistani counterparts,

must register with the Securities & Exchange Commission of Pakistan. Some other commitments

include:

Foreign banks have been allowed to undertake business by setting up locally incorporated

subsidiary with 49% foreign equity.

Other eligibility criteria including minimum capital requirement, is the same as domestic

commercial banks.

Foreign banks are allowed up to 3 branches at the place of their choice.

Investment in shares of existing domestic banks is permitted to foreign nationals/IFIs for

trading purposes.

Representation of foreign nationals on the board of directors has been allowed in

proportion to their share holdings.

Employment of foreign nationals in banks and financial institutions operating in Pakistan

require prior clearance of SBP.

Foreign banks are allowed to setup joint ventures with local persons with equity

participation up to 51%.

Transmission of permissible funds, including foreign currency, can be effected through

authorized banking channels.

All commercial banks are required to be members of the clearing system

operated/approved by SBP.

72 | P a g e

Foreign leasing companies are permitted to setup subsidiary leasing business with

maximum total share holding of 51%.

Foreign licensed entities are allowed to undertake portfolio management services by setting

up locally incorporated subsidiaries with 51%share holding.

Prior written permission is required by SBP for any person holding more than 5%of paid up

capital of any bank/FI

GATS Members are required to publish all measures of general application and establish national

enquiry points mandated to respond to other Member's information requests. This implies

limitations that might be imposed on the number of services suppliers, service operations or

employees in the sector, the value of transactions, the legal form of the service supplier or the

participation of foreign capital.

Technology plays a vital role in introducing new ways of doing business by the financial sector. In

the last few years, Government of Pakistan struggled and strived to meet most of the requirements

put forth in GATT or by WTO. Furthermore, Pakistan has also undertaken institutional changes to

improve policy coordination on WTO matters as well as governance.

The strengthening of the Ministry of Commerce with the establishment of a WTO-cell as well as the

establishment of a WTO Council to look into the effect of WTO-related policies on trade and

production can be seen as another example of Pakistan strong commitment to the WTO process and

the multilateral trading system.

Pakistan has conducted reduction and simplification of its tariff schedules, which have resulted in

the average applied MFN tariff rate falling from 56% in 1993/94 to 20.4% in 2001/02. However,

being the Government’s major source of tax revenues tariff protection is relatively still high in

particular on a few sensitive items, with the existence of some tariff peaks.

Pakistan has taken up commitment under the GATS. Pakistan’s Schedule of specific Commitment

covers 47 activities within the financial, business, communications, construction/engineering,

health, and tourism/travel. During the period under reviews Pakistan have taken various steps to

liberalize and strengthen the services sector, including financial services and telecommunications,

but several barriers remain.

Economic impact of WTO in other countries

The risks and problems associated with deregulated financial flows are increasingly evident,

several multilateral institutions—including the IMF, the World Trade Organization (WTO), and the

73 | P a g e

Organization for Economic Cooperation and Development (OECD)— are currently negotiating new

agreements that would open more markets to multinational banks (MNB) on an even broader scale

than previous regional agreements, such as the North American Free Trade Agreement (NAFTA)

and the Asia Pacific Economic Cooperation (APEC) forum. The explicit purpose of the proposed

rules is to create legal, political, and economic frameworks that would make it virtually impossible

for governments to impose controls on international capital. For example, the IMF intends to amend

its articles so that member countries would be required to obtain permission from the IMF to

introduce capital controls; the WTO is negotiating a new agreement called the General Agreement

on Trade in Services (GATS) to liberalize service sectors, including banking; and the OECD is

negotiating a Multilateral Agreement on Investment (MAI), which would substantially increase the

rights of international lenders and multinational banks.

The Chinese banking system is being encouraged to develop new revenue streams such as online

banking in order to make this sector more competitive. The Central Bank of China is stepping up its

efforts to improve its legal framework in preparation for changes to the financial landscape after

China's WTO entry. On March 16 the Industrial and Commercial Bank of China released the first

business to business online banking service in the Chinese domestic banking sector. In response to

the Chinese government's policy of developing the economy of the western region of China the

World Bank are extending loans of up to US$ 7 billion over the next three years the money will

primarily be used to support infrastructure development and water conservation programs in the

western provinces as well as environmental projects in the east. Major Fields the government of

China is promoting for both domestic and foreign investment includes infrastructure facilities -

environmental protection – education – manufacturing – services - tourism and entertainment

industries. The consumer market in China is expanding rapidly. Today 71% of household shoppers

in Shanghai do their shipping in supermarkets (50% in Beijing) according to AL Nielson, market

research institute. This growth is further evidenced by the expanding ownership of computers, cell

phones and cars. While many Canadian companies have explored the Chinese market over the last

twenty years there are few real success stories. With the changes that entry into the WTO will bring

about in the Chinese economy it is opportune for Canadians to take another look. One of the keys to

success in China is to work in collaboration with a Chinese partner and with the emphasis on

increasing their own competitiveness Chinese organizations are actively seeking out foreign

business partners who can bring investment, technology and marketing expertise to the venture.

74 | P a g e

Incentives

Incentives to the Banking Industry of Pakistan

Regulatory framework has been altered in many ways to reinforce the macro and sectarian reforms

and to buttress banks’ efforts to move into new business areas of direct relevance to the poor and

middle classes. Minimum capital requirements, stringent corporate governance standards, tackling

the problem of non-performing loans have helped weed out weak institutions leading to mergers,

acquisition and consolidation and forcing changes in management and ownership in some cases.

The Government has reduced corporate tax rates on banks from an exorbitantly high 58 percent to

42 percent and aims to bring them down further to 35 percent in the next two years.

(Finance, Growth and Poverty- The Experience of Pakistan)

SBP has already incentivized the banks to mobilize longer-term deposits. In order to encourage

banks to mobilize fixed term deposits of 6 month and above tenor, the SBP has adopted differential

ratios for the calculation of cash reserve requirements-CRR. Specifically, the SBP has prescribed a

lower CRR for fixed deposits with over 6 months tenor and a higher CRR for the remaining deposits

including, current, savings and fixed deposits with maturity less than six months.

(Monetary Policy 2007)

Incentives Offered in Past

To ensure the soundness of the financial sector, the SBP has always focused its efforts on financial

sector deepening, proactive supervision and regulation of financial institutions, strengthening of

financial sector, privatization of the Public Sector Banks and divestment of Government shares in

privatized banks, and promotion of Islamic banking as a parallel system.

In the area of monetary management, the SBP will work on developing a forward looking policy

framework, enhancing the effectiveness of Monetary Policy implementation, improving research

and data dissemination capabilities, and deepening the financial markets.

The main targets for the SBP to ensure an efficient and sound payment system will be through

implementation of the RTGS, promotion of E-banking, establishment of an electronic clearing house

and development of Public Key Infrastructure (PKI) and Digital Certification.

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FUNCTIONAL STRATEGIES

PROACTIVE SUPERVISION AND REGULATION OF FINANCIAL INSTITUTIONS

The SBP plans to formulate an agile banking crisis resolution mechanism through implementation

of Prompt Corrective Action (PCA) regime and reinforce it with modification in the BCO, 1962. In

the short term the cluster plans to enhance market discipline through adoption of International

Accounting Standards 39 and 40, implement IRAF, and enhance the usage of CIB along with the

Data Warehouse (DW). IRAF will also be further modified to reflect the Risk Profiles of each

banking institution and a standardized template will be developed for this purpose (to be filled in

by the bank management and endorsed by their Board). This Risk Profile, as assessed by the

Banking Desk, will also be taken into account in the final composite rating of each bank.

Streamlining of data reporting by banks and DFIs, and ongoing improvements in the inspection

procedures will also strengthen the existing supervisory regime.

The SBP will facilitate in setting up a Financial Intelligence Unit (FIU). Contacts will be intensified

with the new Economic Crime Wing under the National Accountability Bureau (NAB) and rules of

engagement will be laid down explicitly to prevent, detect, and prosecute banking crimes. For

achieving Consolidated Supervision, cooperation with other regulatory bodies (foreign and local)

will be intensified resulting in enhanced off-site monitoring and targeted on-site inspections of

cross border branches.

In addition, the SBP plans to enhance internal capacity to assess the banks’ risk measurement,

management and mitigation efforts on a systematic basis. Capacity building of existing staff and

hiring of those familiar with quantitative techniques and modeling, deployment of appropriate

software application packages, collection of relevant data, and conducting of analysis are also

planned.

STRENGTHEN THE FINANCIAL SECTOR

To further strengthen the financial sector, the SBP will focus on introducing a safety net through the

intended Deposit Insurance Scheme, a phased increase in the regulatory capital requirement, and

acting as catalyst in development of an enabling legal framework for private sector credit bureaus.

Modest progress has so far been made in the consolidation and mergers of financial institutions.

Although the minimum capital requirement has been raised to Rs2 billion, effective from 31st

December 2005, this amount of almost US$35 million is still inadequate in comparison with the

trends in the global banking markets. The SBP is aiming to prescribe US$100 million as minimum

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capital by end of 2009 - a three-fold jump from the present levels. At present, there are ten banks

with US$100 million capital. The higher capital requirements will allow some medium size banks to

emerge and assuming a capital-assets ratio of 5 percent, enable these banks to book assets up to

US$2 billion.

CONDUCT FORWARD LOOKING POLICY ANALYSIS

It has long been recognized that monetary policy management needs a futuristic dimension due to

the existence of long lags between policy actions and their intended effects on output and inflation.

The major hurdle in this respect for the SBP is the absence of a formal framework that may include

the forward looking policy analysis. In order to address this limitation, the SBP plans to build a

macro model to make dynamic impact analysis of various policy scenarios. This will be an inter-

departmental task that will help in exploring the inter-linkages in macroeconomic variables,

particularly understanding the transmission mechanism of monetary policy. At the same time, the

SBP plans to strengthen the forecasting group to make it more effective and result oriented.

Monetary survey will also be reviewed, recast and estimates of M3 prepared regularly as part of

this survey.

ENHANCE EFFECTIVENESS OF MONETARY POLICY IMPLEMENTATION

In the case of Pakistan, the most actively used monetary tool is Open Market Operations (OMO),

which is defined as the purchase and sale of securities by the Central Bank.

While implementing an effective monetary policy is important, it is equally important to do so in a

transparent manner. Transparency requires a central bank's openness in explaining the rationale

for its specific policy decisions. Transparency insulates the central bank from political pressures. It

also helps market participants to form their expectations regarding future outcomes. There is

therefore a need to educate the public on issues relating to economic policy. This will help in

creating better understanding and public support for needed economic changes. For this purpose, a

series of pamphlets will be published on major economic issues, which will focus on explaining

important economic concepts in simple non-technical language.

IMPROVE RESEARCH AND DATA DISSEMINATION CAPABILITY

The SBP provides a candid and objective review of the economy through its flagship publications

(Monetary policy statement, annual report, quarterly report, financial sector assessment, financial

markets review, and banking sector review). However, there is a need to continuously improve the

quality and depth of analysis by producing new insights and more in-depth analysis.

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Incentives Being Asked by the Industry

Pakistan needs to strengthen financial inter-mediation to facilitate structural transformation.

Broadly speaking, the Government has relied heavily on the central bank for its fiscal requirements,

a practice that needs to be reversed. In parallel, the legal and regulatory framework should be

strengthened to manage risks more effectively in the financial sector, promote consumer

confidence, and deepen financial inter-mediation. However, all in all demands of this industry

includes:

i) Raising public confidence in the banking system through a depositor protection

scheme, and stronger financial intermediaries that are better able to mobilize and

allocate resources and risks;

ii) Opening the way for structural transformation.

iii) Cutting transaction costs for businesses by reducing red tape and improving the

investment climate;

iv) Further lowering the corporate taxes on the Banks operating in Pakistan.

If the demands of the increased incentives are met the Banks in Pakistan would be more efficient

and profitable, and they would be able to expand their network effectively, by this they are most

likely to employee more people in both rural and urban areas of Pakistan.

Further if their demands of this industry are met then they would be better able to attract more

deposits, thus making the credit available for the borrowers.

(Business Recorder)

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Incentives Offered in Other Countries

Several examples could be quoted from where we see the world’s global stance on banking. A few

examples to quote are:

ATTEMPTS UNDERTAKEN BY THE CENTRAL BANK OF NIGERIA:

The Central Bank of Nigeria (CBN) has undertaken many steps, keeping in view its objective of

making the Nigerian banking sector the best in Africa, and one of the best systems existing in whole

of the world. Major tasks have been complied into an analytical framework, or rather a challenge

for the CBN board to attend to, with respect to consolidation:

1. A write-off of 80% debt owed the CBN by the banks, subject to:

a. The recovery of ALL non-performing owner/insider-related loans and advances

within two months;

b. Injection of ALL shortfall in the bank’s capitalization to bring it up to a solvency

status, also within two-month timeframe.

2. The conversion of the balance of 20% of the debt of CBN to a long-term loan of maximum of 7

years at 3% per annum including two year’s moratorium;

3. A further forbearance on the balance of 20% of the debt [(b) as above] could be extended to the

new owners after its acquisition.

CBN, in this aspect, has kept the safeguard of depositors, employees and other stakeholders of the

problem banks. In addition, it has also considered:

a) The need to avoid to reward the past mismanagements and bodies of conduct through

insuring the forbearance was contingent on the recovery of owner/insider non-performing

facilities.

b) The issue of granting loans to banks and writing them off in the future will no longer exist in

the new patent system, which is a concession, which shall not reoccur.

c) Substantial loan loss provision: If CBN doesn’t write off the loans, the entire banking sector

will hit touchdown, thereby eventually liquidating and losing bank employees and the debt

owed to CBN.

It is expected, with the above scenario that acts of CBN make worthy progress for all to benefit.

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GOVERNMENT INCENTIVES AND THE FINANCIAL SERVICES SECTOR IN SCOTLAND

An analysis of government incentives in Scotland showed that regional incentives could have a

significant impact on the financial services industry if they are concentrated on "soft" investments

such as on human capital in terms of skill training and knowledge enhancement. To develop the

competitiveness of the financial services sector, financial incentives should be supplemented by

high quality information technology (IT) and telecommunications infrastructure. Using government

assistance on research and development of IT could also help the sector more effectively than

present measures.

(FAQ)

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UNITED STATES OF AMERICA: BAIL OUT PACKAGE FOR US BANKS

The subprime mortgage crisis reached a critical stage during September 2008, characterized by

severely contracted liquidity in the global credit market and insolvency threats to investment banks

and other institutions. In response, the U.S. government announced a series of comprehensive steps

to address the problems, following a series of "one-off" or "case-by-case" decisions to intervene or

not, such as the $85 billion liquidity facility for American International Group on September 16, the

federal takeover of Fannie Mae and Freddie Mac, and the bankruptcy of Lehman Brothers.

To tackle these issues the U.S. executed two stimulus packages, totaling nearly $1 trillion during

2008 and 2009

US Treasury Secretary Timothy Geithner announced late Sunday on 22nd March 2009, a 500-billion-

dollar federal program to remove from bank balance sheets troubled assets that he said "are now

clogging" the US financial system.

The purpose of this package is to purchase bad assets, reduce uncertainty regarding the worth of

the remaining assets, and restore confidence in the credit markets.

This incentive cushioned many banks which were on the verge of Bankruptcy.

(Geo TV)

(Wikipedia)

(Emergency Economic Stabilization Act of 2008)

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Service Delivery Process

Credit cards and the personal/business finance are the key products that the consumer Banks offer.

Credit Cards – It is a part of a system of payments from plastic card, issued to users of the system.

It entitles its holder to buy goods and services based on the holder’s promise to pay for those goods

and services later.

Business Finance – it is an area of finance dealing with the funds and financial decisions that the

individuals/entrepreneurs make and the tools and analysis used to make the decision.

The service delivery process of these two banking products and their explanation are described

ahead.

For Service Delivery Process, see appendices 3 and 4 <Figure 7: The Loan Process, Figure 8: Credit

Card Processing Form >.

(Policy & Planning Small and Medium Enterprise Development Authority Ministry of Industries)

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Pricing and Costing

Pricing is the process of determining what a company will receive in exchange for its products.

Pricing factors are manufacturing cost, market place, competition, market condition and quality of

product. The effective price is the price the company receives after accounting for discounts,

promotions, and other incentives. In case of banking, one can very visibly observe the cut-throat

prevalent among companies in the market. A cost is the value of money that has been used up to

produce something, and hence is not available for use anymore.

Fixed and Variable Costs in the Banking Industry

Fixed Cost

Fixed costs are defined as those that are permanent in nature and independent from the operations

of the business. These costs tend to be time-related, such as salaries or rents being paid every

month. In Banking, fixed costs are divided into two categories:

a) Direct Costs

b) General and Administrative Expenses(G & A)

Direct Costs are the key resources the bank has in order to provide its services to its customers.

They may include:

Building Maintenance and Operating Cost

Land

Data-processing equipment

Full-time staff

Licensing Fees

Product Franchise Card – VISA, MasterCard

These costs have a long-term effect.

General and Administrative Expenses (G & A), in contrast, are incurred to aid and govern the

organization. These include:

Advertising

Interest on the corporate debt

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Administrative salaries and expenses

Insurance

Variable Costs

Variable costs, on the other hand, fluctuate in direct proportion to changes in output. Labor

and material costs are typical variable costs that increase as the volume of production

increases. It takes more labor and material to produce more output, so the cost of labor and

material varies in direct proportion to the volume of output. In banking, however, following

are covered under the head of variable cost:

Casual staffs’ salaries and other expenses – Medical etc

Performance bonuses

Training cost

Promotional Campaigns

Utilities Expenses

Communication Cost

Fees Paid to Outsiders – Advisors’ Fees, External Auditors’ Fee and Remuneration and Legal

Charges and Professional Charges

Rent and Taxes

Stationery & Computer Items – Books, Pens, Booklets, Diaries etc

Traveling Expenses & Allowance

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List of Available Products/Brands

HBL Credit Card Schedule of Charges for Credit Card

Gold

Card

Green

Card

Rupees Minimum gross salary requirements Rupees

50,000 Salaried individuals 15,000

180,000 Self-employed business persons/professionals 25,000

Rupees Credit limit range Rupees

150,000 Minimum 20,000

500,000 Maximum 149,000

Service Charges 33% for salaried & 36 % for SEB/SEP p.a.

Cash Advance service charges 36% p.a. of outstanding cash advance amount

Joining Fees NIL

Annual Card Fee Green Card Rs. 1,000, Gold Card Rs. 2,000

Supplementary Card Annual Fee Green Card Rs. 500, Gold Card Rs. 1,000

BTF Booking Charges Rs. 1,000 or 3 % of the transferred amount.

Late Fee Rs. 600

Cash Payment Fee Rs. 150

Overlimit Fee Green Card Rs. 500, Gold Card Rs. 1,000

Voucher Retrieval Fee Rs. 1,000

Arbitration Charges for Disputed Transactions USD 500

Car Replacement Fee Rs. 500

Cash Advance Issuance Fee Rs. 500 or 3 % of amount withdrawn

PO/DD Issuance Fee Rs. 400 or 3 % of amount withdrawn

Table 9: HBL Credit Card Charges

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HBL PLS – Savings Account

5.06% profit per annum

Profit paid bi-annually

Minimum balance of Rs. 20,000

NBP PLS – Saving Account

Earn up to 7.25% p.a.

Minimum saving balance of Rs. 20,001/- & a maximum balance of Rs. 300,000/-

UBL Credit Card Schedule of Charges for Credit Card

The schedule is in appendices 5 < Table 10: UBL Credit Card Charges>

UBL UNIFLEX Account

Four rate tiers are offered to UniFlex customers:

Minimum Balance touched in month (Rs.) Proposed rate Dec 2008

Rs. 0 - Rs. 50,000 7.00%

Rs. 50,001 - Rs. 1,000,000 7.25%

Rs. 1,000,001 – Rs. 5,000,000 7.50%

Rs. 5,000,001 – Rs. 10,000,000 7.75%

Above Rs. 10,000,000 8.00%

Table 11: UBL Uniflex Account Rates

Pricing Model

For determining the price (interest rate) for the loan, advances the price function would be :

P = f (Discount rate, inflation, Default risk, time)

Equation 1: Price (Interest rate) for Loan

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Key Issues and Their Solutions

Key Issues in Economy

Pakistan's economy mainly encompasses textiles, agriculture and service sector industries. The

economy has suffered in the past from decades of internal political disputes, a fast growing

population, mixed levels of foreign investment, and a costly, ongoing confrontation with

neighboring India.

Pakistan receives economic aid from several sources as loans and grants. The International

Monetary Fund (IMF), World Bank (WB), Asian Development Bank (ADB), etc provides long term

loans to Pakistan. Pakistan also receives bilateral aid from developed and oil-rich countries. This

however adds to the burden of interest expenses. Presently the most important issues affecting the

economy are political uncertainties, terrorism, and the inefficient working of different national

institutions in general.

Key Human Resource Issues

The banking sector has grown from a few institutions primarily involved in deposit acceptance and

trade finance into a complex multi player markets where large number of commercial banks,

financial institutions and specialized banks are operating with various products and activities.

The banking has become a complex activity within the financial market linked directly and

indirectly with an over-all national growth and its impact extends to the overall national economy

and society. Almost every bank and financial institution is involved in various functions and thus

requires a highly effective team and appropriate manpower to run the show. Corporate goals are

translated into viable realities and profits only with human elements that play their due role in

achieving the desired results.

Even the high degree of automation would require an appropriate man behind the machine to make

things happen as required. This idea has been realized by top managements in progressive banks.

Like many other organized sectors, banking requires multi layer manpower for its various

requirements of professionals and support staff. The range may require reasonably educated

security guards on the one end and a highly educated and trained professional as head of corporate

finance at the other.

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With liberalization of activities within the banking sector, for example, more emphasis on consumer

and house finance and personal loans, etc. banking has turned itself into a more market-based

business where banks have expanded their reach more to customers' door steps in a big way

making banking more practical. This has further highlighted the need for proper deployment of

man-power to run banks efficiently.

For many years, banks like other institutions have been handling this sensitive activity through

respective personnel departments. This means human resources were managed like other physical

assets e.g. pieces of furniture, calculators, equipment and appliances. Personnel departments were

primarily engaged in approval of leaves, handling of staff loans, issuance of show cause, conducting

disciplinary enquiries and termination from service. Recruitment was a routine function and was

done in a mechanical way to hire people with specific educational background irrespective of their

real value to the institution.

Success stories of large banking companies have been evident of the fact that HRM is quite different

from management of physical assets. Human brain has its own peculiar chemistry. Its strong

sensory and decision-making capacity has to be greatly emphasized by the employers. The work

force constituting all levels of employees is constantly thinking in many dimensions. On the one

hand it is the assigned duty and task they are to perform and for which they are paid by their

employer, on the other they think of their long run goals and objectives.

By no means, their brains can be controlled to think beyond the current situation of employment.

Managing this educated, skillful and trustworthy work force is not an easy job. A few of the current

challenges faced by the banking industry in terms of human resource management may be the

following:

Effective work force:

A time-consuming and hectic job is to hunt the right talent. Its just sitting by the river and waiting

for the right fish to catch. Higher the professional value of the vacancy, tougher is the search.

Identifying the right stuff followed by negotiation is the element which makes the job tough for the

employer. Banks are keenly interested to fill up two types of breads of professionals.

Ones who are outstanding professionals with high job hopping attitude - these are those who come

in - work for some time and then leave for better prospects. Others are those who are keenly

picked-up, trained and are somehow retained to be developed as future management within the

bank. Management trainees are a growing popular phenomenon where freshly qualified business

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graduates are engaged by banks and a certain percentage of these well equipped professionals stay

back within the organization to grow into the footsteps of senior managers.

Banking jobs being apparently lucrative for many attract a large number of candidates against

advertised vacancies in media creating a large data base management problem. This has been

facilitated by specialized hiring agencies who may take up the job of hiring in case of large number

of vacancies.

Right people:

The most difficult agenda of HRM across the banking sector is to retain the right people. Sudden

growth of retail banking and other services has put pressure on HR mangers in banks to engage

more professionals within shorter span of time thereby attracting manpower in other banks on

attractive packages has made the job market very competing. A bank in a normal course invests

time and money to hire and train the appropriate work force for its own operations. This ready-

made force is often identified and subsequently picked-up on better terms by others.

Compensation:

How much to pay to the right employee and how much to the outstanding performer. Banks have

traditionally followed pay scales with predetermined increments, salary slabs, bonuses and time-

based fringe benefits like car and house advance, gratuity, pension, etc.

The situation is not the same anymore. An increment of even up to Rs 1000 per annum is no more a

source of attraction for a professional anymore. A basic pay with traditional formulas of linkage

with medical and other facilities has no soothing effect today.

A promise of future growth, learning culture and corporate loyalty is out of dictionary and does not

mean anything to the energetic and competent performer today. Immediate and appropriate

compensation is what the employees demand now. A freshly hired professional requires a brand

new car or car loan on resuming office quite contrary to his previous breed of bankers who would

wait for the job seniority to qualify for a car loan.

Job satisfaction:

Everybody in the bank wants to work in the preferential department, preferential location, city of

his own choice and boss of his liking. An administrative deviation from any of these results in

lowered job satisfaction. Although hiring is normally based on regional requirement matching the

area of activity with that of employee's nativity yet other elements like appointment in the

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department of choice and preference makes the job of HR manager quite challenging. What the HR

manger cannot afford is the dissatisfied employee who not only disrupts the smooth working for

his/herself but also spreads the negativity to others by his de-motivated attitude.

Morale boosting:

What has long been overlooked is the morale boosting of the employees by the organizations.

Human beings even if satisfied of material wellbeing need to be appraised and encouraged

constantly. Smart banks have realized this need and have taken steps to keep their work force

motivated through proper encouragement like man of the month awards, meeting with the

President, repeat get-togethers, conferences, sports events, dinners, company sponsored travel,

reunions, etc. This is the way employees create a feeling of belongingness.

Information sharing:

HR managers receive complains from the bank employees that they are often denied crucial

information that they require. This is because their request for information has to go through many

checks and approvals. An efficient operating procedure needs to be developed in this regard.

Key Hurdles in Marketing

Just a two decade ago the competition between the banks was not so intense as it is now, this is

mainly because of the nationalization of banks, but during the financial sector reforms in 90’s many

nationalized banks came into private ownership and also many new private banks emerged. From

this point of time the competition in the banking sector started in its true essence. The broadening

scope of retail banking and the emergence of many new products of the retail banking further

added to this competition.

The marketing and advertisements of these retail banking products has been so intense these days

that for the consumers the information gets cluttered. The bombardment of information on almost

all the media type by the banks in this industry has created hurdles in the smooth functioning of

marketing strategies.

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Impact of Political Parties/Bureaucracy

The short history of Pakistan reveals that the Banking Industry in Pakistan has been most affected

by the political parties/bureaucracy and remains of primary concern to them. The most notable

events/policies are as follows:

NATIONALIZATION – During the era of Z. A. Bhutto

ISLAMIZATION – During the era of General Muhammad Zia-ul-Haq

PRIVATIZATION (Financial sector reforms) – During the era of Benazir and Nawaz Sharif

ENLIGHTEN MODERATION – During the era of General Pervez Musharraf.

Further to that, it has also been noted that banks frequently receive recommendations for the hiring

of staff from the high profile government personals, but banks have become smart to that these

days. They make them sit for a test, and then on the basis of the results, interview and history, they

accept or kindly send them off on a positive note.

Proposals Presented

The political parties and even the state bank of Pakistan should stop pressurizing the banks

to hire staff that they propose; this would allow the HR managers to perform the hiring

function efficiently.

An efficient IT system has resolved many problems of Data sharing but it should be further

improved to cater authorization and real time data sharing issues.

Salary is not found to be the most important thing of employees concern; they rather want

to get a recognition and appreciation against their efforts. The HR department in banks

should therefore take this attitude of employees seriously and must take appropriate

measures to avoid any undesired happening.

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Our Proposals

As to minimize the influence of government regarding the hiring of staff the banks should

advertise less about vacancies and should rather go for internal recruitment. As for the

hiring at the lower levels the banks should make policy that they will recruit directly from

the universities.

The compensations should be done in accordance to the performance of the employee not

accordance to the level of seniority or time spent in bank.

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Human Resources Situations

Human Resource Requirements

HRM means employing people, developing their resources, utilizing, maintaining and compensating

their services in tune with the job and organizational requirement. Human Resource helps and

assists the organization with advices to the specific requirements. They seek smart people who are

good at their respective functional areas, so they may assist the organization reach its goals and

objectives.

HR managers in banks have their hands on smart Human Recourse Information Systems (HRIS),

that enable them to monitor and appraisal the employee’s performance, moreover it also helps

managers to evaluate CV’s they receive through mails in response to their vacancy advertisements.

The modern technology is in place and some smart people have got their hands on it, but still many

human resource requirements remain unfulfilled, like hiring of the right person at the right time.

This is not because of the malfunctioning of these systems or because of the incompetency of these

people but rather because the right person is not available to them, and the one’s who are, is

already taken away by other banks.

These Human resource requirements can only be fulfilled if the overall systems in general and

education system in particular perform well, and if a strong link is developed between them.

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Job Titles, Job Descriptions, and Job Specifications

The prominent job titles in the banking industry are: Branch Manager, Service Quality Coordinator,

Sales, Customer Call (Call Centre Officer) and IT Security Officer.

Branch Manager

Job Description:

The position is responsible for overall branch activities, targets and profitability

Leads the implementation of new products

Launch new systems

Manage day-to-day activities of branch with value addition & constant improvement in

results to deliver creative solutions & quality to customers, conforming to SBP laws &

Bank's policies

To attain satisfaction by providing excellent services to our valued customers

Skills Required:

Communication, IT, Management, Presentation, Interpersonal, Conflict Management, Selling,

Administrative, Banking Laws, Prudential Regulations.

Service Quality Coordinator

Job Description:

The purpose of the job is to facilitate the customers (both existing & walk-ins) in their dealings with

the bank and provide them services at the comfort level beyond their expectation. Also to provide

information and personalized guidance, solution provision to general problems at first point of

contact with customers and routing to the concerned.

Skills Required:

Communication, Interpersonal, IT.

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Sales

Job description:

To achieve monthly/quarterly/yearly targets assigned by the management

To visit customers on daily basis and submit Market Visit Report (MVR)

To generate sales leads

To maintain healthy business relationship with customers

To handle key customer complaints and liaison with the concerned department for its

speedy resolution

Keep an eye on the competition and communicate market updates to the management on

regular basis

To conduct retail audit with respect to standard branding of the retail outlet and liaison

with MNO for any deviation

Skills Required:

Person should hold good communication skills and should hold good negotiation skills.

Customer Call (Call Center Officer)

Job Description:

Accurately respond to customer inquiries regarding their account(s) ensuring that all needs

are met and handled appropriately during their initial contact

Maintain excellent knowledge of Bank systems and procedures in order to perform

necessary maintenance to customer’s accounts in a timely and accurate manner

Recognize opportunities to enhance relationships with Bank customers by proactively

exploring needs, ensuring that initial needs are fully met and additional needs are

uncovered and that appropriate recommendations are made to meet the need(s)

Provide efficient and responsive service to customers by maintaining an acceptable level of

productivity as measured through established metrics, which include (but or not limited

to): schedule adherence, availability, and attendance.

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Skills Required:

Person should have an excellent verbal communication skills, excellent customer service skills,

ability to multi-task in a fast paced environment, strong listening skills, ability to effectively probe

to identify needs, strong written communication skills and strong analytical and problem solving

skills.

IT Security Officer

Job Description:

This position will support the IT's Information Security Officer Program by assisting with projects,

working with the business and technical resources to identify secure solutions, risk assessments

and incident investigation. This position will also assist project resources (both business and

technical) as they move through various stages of a project and require technical assistance. This

position will help business and technology resources solve problems and ensure secure solutions

are implemented.

This position will give guidance and seek solution with regard to interpretation and

implementation of the Information Security Policy and Standards. The ideal candidate will come

from an enterprise environment and have at least 2-3 years of IT security experience both hands-on

and policy driven.

Skills Required:

Policies/Procedures, Auditing, Risk Correction

Specific Training Institutions

There are no specific training institutions. Most organizations have their senior employees train the

younger employees by giving them first-hand experiences.

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Porter’s Six Forces Model

Porter’s Six Forces Model is an extension of Porter’s Five Forces Model. The six forces are as follow:

Internal Rivalry

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitutes

Threat of New Entrants

The Government/ The Public

Internal Rivalry

Internal rivalry regards competition within an industry. In banking internal rivalry is very high,

which could be observed with a number of factors such as Concentration, Fixed and Variable Costs,

Capacity to Differentiate, Pricing Behavior and Growth.

Concentration:

Concentration suggests the number of firms in any industry competing with each other that are

more or less equal in size and capacity. The higher the number of companies in an industry; the

higher the concentration level will be. According to the statistics, there are 26 consumer banks in

Pakistani consumer banking sector and rivalry among them is intensified because of the diverse

competitors in terms of their corporate priorities which is shaped by strategies, personalities,

resources and countries of origin.

With the change in policy of the State Bank regarding the Cash reserves requirements, many small

banks have been forced to merged or leave the competition. Many banks have also been acquired by

the foreign banks who were seeking access into the Pakistani market, which is further adding to the

degree of rivalry.

Fixed and Variable Costs:

In consumer banking industry, there are high fixed costs that act as a barrier to enter. Because of

the dire need to open branches in every nook and corner of the country the fixed costs cannot be

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lowered. Other than the cost of land and building the salary expense is another major determinant

of fixed costs which increases with the increase in number of branches.

On one hand these high fixed costs are the barriers to entry and but on the other hand because of

these fixed expenses are already incurred , it becomes difficult for banks to get out of the business,

thus further intensifying the competition in this industry. Variable costs are also high because of

the intense competition in this industry. Variable cost mainly comprises interest expense.

Capacity to Differentiate:

Differentiation suggests the ability to distinguish products/services on the basis of features or traits

such as quality, performance, services, etc. In banking sector, there is a low degree of

differentiation capacity for the banks, where every bank offers more or less the same products. As

the products/services are weakly differentiated, the customers incur low opportunity cost in

switching from one bank to another, thus adding to the strong competition. However Banks tries to

retain their customers by offering some special packages like Hajj and Umrah package.

Pricing Behavior:

In banking, although the core services remain constant such as Savings and PLS accounts, prepaid

cards, Debit and Credit cards, Personal and Business Finance, etc., banks try to gain the market

share with a low price packages, it is however difficult to determine the pricing behavior as because

of some determinants of price are uncontrollable such as discount rate, inflation etc. Banks are

tempted by the Industry conditions to use price cuts and other competitive weapons for survival.

Growth:

In the year FY09, the State Bank of Pakistan has continued its tight monetary policy in order to fight

and overcome the worsened situation that Pakistan faces. Due to this banking sector shows a

decline in private sector credit along with high amount of bad debt.

In FY 09 the contribution of consumer loans in the growth is in negative because people have

stopped paying back the loans they borrowed from the banks, thus creating high amount of bad

debt.

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Bargaining Power of Suppliers

Supplier refers to the market of inputs. Banking is a unique kind of industry in which buyers and

suppliers are essentially same. The bargaining power of suppliers is low. We can analyze the

supplier of the banking sector under four major heads, Supplier Concentration, Forward

Integration, Switching Cost and Buyer’s Information.

Supplier Concentration:

In the consumer banking industry, there is a huge pool of suppliers, comprising of all the individual

and corporate depositors, savers and other account holders who saves their money in banks.

Money is a very important input for banks as it needs to make advances, but as there are many

suppliers so because of that their bargaining power is relatively low.

Forward Integration:

In the case of consumer banking industry the chances of forward integration by the individual

suppliers is low. However some non-bank financial institutions (NBFI) pose a major threat of

forward integration.

Switching Cost:

As described above there are thousands and thousands of suppliers of the consumer banking

industry, so switching cost would be low, but the requirement of the banks cannot be fulfilled by

the supplies of few individuals or companies, as the bank look for supplies from as many

individuals and companies as possible. In this regard the switching cost remains high.

Heterogeneity:

Banks require money from the suppliers (depositors) so that it could extend credit to its buyers

(borrowers). For this reason banks offer different packages to attract money, but the demand of the

banks remains unchanged (i.e. money). So heterogeneity is low.

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Bargaining Power of Buyers

Buyers of the consumer banking industry are those individuals who avail the services being offered

by banks. The bargaining power of buyers is low. Some of the factors considered in bargaining

power of buyers are Buyer Concentration, Backward Integration, Switching Costs and Buyer’s

Information.

Buyer Concentration:

In the consumer banking industry, there are huge numbers of people availing the banking services

both from urban as well as the rural areas. These customers/buyers include all those individuals

who avail the banking services so the buyer concentration is high.

Backward Integration:

Individual customers are the buyers in the case of consumer banking industry. These individuals

avail different consumer banking services being offered by banks. As the buyers are in individual

customers so the threat of backward integration is low.

Switching Costs:

This implies the financial and opportunity cost of switching from one firm to another by the buyer.

In banking, switching cost is relatively low, since the customer has greater power to easily switch

from one bank to another at any time.

Heterogeneity:

Demands of customers vary from one individual to another. So, heterogeneity is high.

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Threat of Substitutes

Substitutes are defined as alternatives that customers choose to buy or avail instead of their routine

product or service. In consumer banking sector, the threat of substitute are high. Some of the

factors that could be considered in case of substitutes are Availability and Suitability of

Alternatives.

Availability

Like consumer banks services, there are specialized banks that offer similar kinds of services.

Offerings include National Saving Scheme/Defence saving certificates. When considering savings

and earning profit, the saver (individual customer) have got many options other than just

depositing money into bank. The options include investment in shares or bonds, investment in

different financial instrument such as prize bonds, etc.

While considering the credit requirements of individual customers, it can be observed that other

than requesting credit from banks an individual has got other options as well, such as if he require

loan to build his home then he can go to House Building Finance Corporation (HBFC) for credit

support.

All in all it can be concluded that there are many substitutes of the offerings (services) of the

consumer banking industry.

Suitability of Alternatives:

Availability of alternative is one thing, but what is more important, is the suitability of that

alternative. When an individual wish to save (invest) his money other than the packages offered by

the consumer banks, then there are many options to choose from. Most of these other packages may

yield more than the package in consumer banks, but in most cases they are much riskier. The

characteristics of the alternatives (substitute products) are different; it is the decision of an

individual to choose from these options by considering all the relevant scenarios.

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Potential Entrants

In the consumer banking sector of Pakistan, the threat of Potential Entrants is both high and low

depending upon the scenarios in consideration.

Low Threat

Consumer banking industry in Pakistan has witnessed a high growth rate during last few years;

many banks have greatly benefitted from it and now have grown into large and strong banks which

have their branches expanded to the whole of the country.

It will be very difficult for an entrepreneur to come up with an entirely new bank in this industry

where fixed cost and competition level is very high. One factor that acts as a barrier to enter in this

industry is the market and resource access. New bank would have to open many branches across

Pakistan which would be very costly, and also it would be very difficult to attract deposits in the

beginning because of the new name and trust issues.

Permission from the State Bank of Pakistan to operate the Bank in the territories of Pakistan is also

an issue worth considering. The high Cash reserve requirements (Rs. 6 Billion) have forced many

banks to get out of the industry which is also a big hurdle in the entry into this industry.

High Threat

The major threat of entry into the banking industry is posed by the NBFI (Non Banking Financial

Institutions), who already have a strong financial system in place and who already have a strong

financial base and possess capability to provide consumer banking services to its current and

potential customers, bringing more people to its desk and gaining more ground in the industry.

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The Government/The Public

Government policies and procedures have a serious impact on the functioning of the banking

industry in Pakistan. Monetary policy, proposed by the State bank of Pakistan, and Fiscal policy,

carved by the Government of Pakistan impacts the overall financial structure of the Pakistani

economy.

Interference of the government in banking industry can be revealed by turning the pages of history.

Privatization of banks and abolishment of Pakistan Banking Council (PBC) resulted into less

political interference. Restructuring of banks has minimized the role of staff union in administrative

operations.

Still the government influences the banks in many cases, they send recommendations and even

pressurize banks to hire employees that they recommend, but now banks have developed ways to

minimize their influence to some extent.

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Context Analysis

The last and the most extensive analysis of the industry is the Context Analysis. This analysis

includes all the issues and factors identified throughout the project. Context analysis for the

consumer banking industry is done in the following steps:

1) Defining the subject

2) Trend Analysis (PESTL)

3) Industrial Analysis

Strength and Weaknesses

4) Defining Opportunities and Threats

5) SWOT-i matrix

Defining the Subject

The subject in consideration is the consumer banking industry of Pakistan.

Trend Analysis

POLITICAL TREND ANALYSIS

The banking industry in Pakistan has been most affected by the political parties/bureaucracy and it

remains of primary concern to them. The most notable events/policies are as follows:

NATIONALIZATION: During the era of Z.A. Bhutto

ISLAMIZATION: During the era of General Muhammad Zia-ul-Haq

PRIVATIZATION(Financial sector reforms): During the era of Benazir Bhutto and Nawaz

Sharif

ENLIGHTEN MODERATION: During the era of General Pervaiz Musharraf

Further to that, it has also been noted that banks frequently receive recommendations for the hiring

of staff from the high profile government personnel.

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ECONOMIC TREND ANALYSIS

The CRR, SLR and the discount rates set by the SBP has a direct impact on the banking industry.

High degree of variability can be observed while examining the trends regarding the policies of the

State bank of Pakistan.

Table 12: Cash Reserve Requirements

SLR

Effective date SLR Change

22-May-08 19.00% 1.00%

18-Jul-06 18.00% 3.00%

12-Jul-99 15.00% 2.00%

19-May-99 13.00% -2.00%

22-Jun-98 15.00% -3.00%

2-Jan-98 18.00% -2.00%

28-May-97 20.00% -5.00%

1-Mar-94 25.00% -5.00%

27-Oct-93 30.00% -10.00%

19-Dec-92 40.00% 5.00%

13-Aug-92 35.00% 5.00%

16-Aug-73 30.00% 5.00%

9-Jun-72 25.00%

Table 13: Statutory Liquidity Requirement

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CRR

Effective date CRR Change

1-Nov-08 5.00% -1.00%

18-Oct-08 6.00% -2.00%

11-Oct-08 8.00% -1.00%

22-May-08 9.00% 1.00%

31-Jan-08 8.00% 1.00%

1-Aug-07 7.00%

Discount Rate

Effective date D Change

17-Aug-09 13.00% -1.00%

20-Apr-09 14.00% -1.00%

12-Nov-08 15.00% 2.00%

29-Jul-08 13.00% 1.00%

22-May-08 12.00% 1.50%

1-Feb-08 10.50% 0.50%

31-Jul-07 10.00% 0.50%

29-Jul-06 9.50% 0.50%

11-Apr-05 9.00% 1.50%

18-Nov-02 7.50% -1.50%

23-Jan-02 9.00% -1.00%

20-Oct-01 10.00% -2.00%

17-Aug-01 12.00% -1.00%

19-Jul-01 13.00%

Table 14: Discount Rate Imposed by SBP

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The inflationary trend can be observed by examining the graph drawn below.

Figure 9: Rate of Inflation from 1950-2009

In fifties there was low inflation whereas in the sixties same trend of low inflation was followed.

The seventies entailed high inflation; the eighties saw moderate inflation; and nineties witnessed

high inflation. Over the following nine years, i.e. 2000-01 to 2008-09, inflation saw a low of 3.1

percent in 2002-03 to a high of 22.3 percent during the current year, which is also the highest level

in two decades. The overall annual inflation is expected to average 21 percent while GDP growth to

remain at 2.0 percent for the year 2008-09.

The exchange rates of Pakistan with respect to the U.S. dollar, has declined considerably over the

last few years.

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SOCIAL TREND

The banking system with all its complexities, challenges and opportunities touches virtually all

aspects of people’s daily lives. Using a credit card to make a purchase, writing a personal or

business check, paying bills and moving funds online or accessing your funds through an automatic

teller machine are just a few examples of how people participate daily in the banking system.

Indeed the banking system has made many things easy.

The recent growth of the consumer banking industry in Pakistan has helped creating many jobs.

Banking jobs being apparently lucrative for many attract a large number of candidates against

advertised vacancies in media. We see an increase in the number of students with bachelors in

business administration, willing to offer their services in the banking industry.

There was a common negative belief among the people generally about the interest involved in the

banking transactions, but this issue has been resolved to much extent by the emergence of Islamic

banking.

TECHNOLOGICAL TREND ANALYSIS

The technological changes have revolutionized the way banks operate. Traditionally, the provision

of financial services was very much dependent on the branch networks of financial institutions. But

now, information and communications technology has enabled the more diversified and convenient

provision of financial services, including via the Internet and unmanned ATM networks.

The creation of a new supply channel for financial services has substantially reduced the cost of

financial transactions. For example, Internet banking has greatly lowered the processing cost of

banking.

The banking industry could not provide the level of service it does without the support of advanced

information processing and telecommunication technologies.

It is therefore the need of an hour, that banking industry should adapt the technologies that occur.

LEGAL TREND ANALYSIS

The banking industry of Pakistan is surrounded by many strict legal forces. As State Bank of

Pakistan is the sole regulatory body, so almost the legal issues are handled by it.

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Industrial Analysis – Strength and Weaknesses

STRENGTHS

S1 - The Banking industry is the key player in the economy, as it relates to many businesses

and individuals.

S2 - Although Pakistan’s economy mainly encompasses textiles, agriculture and service

sector industries, all export and import transactions, loans provided to individual

customers, etc. are being backed by banks in Pakistan.

S3 - Banking Industry employees a very capable and competent workforce.

WEAKNESSES

W1 - Huge impact of politics is visible in the banking sector, where references of people

belonging to political parties are being sent by government and even by the State Bank of

Pakistan (SBP).

W2 - The HR function in this industry seems to be week as high turnover rate can be

observed.

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Defining Opportunities and Threats

OPPORTUNITIES

O1 - With the increasing number of business students graduating from universities, there

are a substantial number of potential employees to enter the market.

O2 - Market for the consumer banking industry is not matured, they can go for market

development.

THREATS

T1 - The competition within the industry is very high.

T2 - A major threat posed is by Non-Bank Financial Institutions (NBFI), who already have a

strong financial base in place and possess capability to provide consumer banking services

to its current and potential customers.

T3 - Like consumer banks, there are specialized banks that offer similar kinds of services,

such as National Saving Schemes/Defense Saving Certificates, etc.

T4 - Political uncertainties poses some degree of threat to this industry.

SWOT-I MATRIX

OPPORTUNITIES THREATS

STRENGTHS S1 O2, S2 O2 S3 T4

WEAKNESSES W2 O1 W2 T1

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Strategic Plan

The trend analysis gives insight to the patterns originating from this industry, and also the patterns

that have an impact on this industry. Internal analysis gives insight to the competences of an

Industry, and the external analysis helps identifying the opportunities and threats. These were all

combined in the SWOT-i matrix. The SWOT-i matrix helps identify issues that need to be dealt with.

These issues need to be resolved by formulating an objective and a plan to reach that objective, a

strategy.

Considering all the factors a strategic plan has been proposed to best utilize the Industry’s strength

to avail the opportunity and to avoid the threats, and also to see that which opportunity can be lost

due to the weakness and which weakness poses a threat.

The strategic plan includes the following points:

Every Industry, business or individual is directly or indirectly linked with the banking

industry. This is a great opportunity for the banking industry. As the competition in the

current market is mounting, banks have got the option to go for ‘market development’.

Almost all the transactions in the economy are backed by the banks, this brings customers

to their doorstep. As the industry is blessed with the strong gravity banks should focus on

better serving the underserved market.

Banking Industry of Pakistan has remained a victim of politics and uncertain market

conditions, but this threat has been largely overcome by the qualified and the efficient

workforce.

The turnover rate is high, but its effect can be minimized to some extent by recruiting the

fresh graduates who are entering the job market.

Retention of good employees should be considered on priority basis, as the left over

employees are likely to join other banks, adding fuel to the burning competition.

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Appendices 1

CONSUMER

BANKS:

C

A

C

Y

A

O

D

S

A

D

A

F

ELkrs

A

T

M

Dbt CrdtP

P

C

h

q

OP

F

H

F

A

F

B

F

S

L

Bus

F

I

n

s

M

B

E

-

B

T

C

F

T

U

B

1 Alfalah

Bank of

Pakistan

Y N N Y Y Y Y Y Y Y N Y N Y Y Y N N Y N Y Y Y Y N

2 ABL Y N Y Y Y Y Y Y Y N Y Y N N N N N Y N N N Y Y

3 AHB Y N N Y Y Y N Y N N Y Y N N N N N N N N Y Y N N N

4 Askari Bank Y N N Y Y Y N Y Y Y Y Y N Y Y Y N N Y N Y Y N Y N

5 Atlas Bank Y N N Y Y Y Y Y N N N Y N Y N N N N Y N Y Y Y Y Y

6 Bank AL

HabibY N Y Y N Y N Y Y N N Y N N N N N N N Y Y Y N Y N

7 Barclays

BankY N N Y Y Y Y Y Y Y N Y N Y Y N N Y N N Y Y N Y N

8 Faysal Bank Y N N Y Y Y Y Y Y N N Y N Y Y Y N Y Y N N Y Y Y N

9 HBL Y N Y Y Y Y Y Y Y Y N Y N Y N Y N Y Y N Y Y Y Y Y

10 Habib

Metropolita

n Bank

Y N N Y Y Y N Y Y N Y Y N Y N Y N Y Y Y Y Y N Y N

11 JS Y N N Y Y Y Y Y N N N Y Y Y N Y N N Y N Y Y Y Y Y

12 KASB Y N Y Y Y Y N Y N N N Y N Y Y N N Y N N N N N Y N

13 MCB Y N N Y Y Y Y Y Y Y Y Y Y Y Y Y N N Y N Y N Y Y N

14 Mybank

LimitedY N N Y N Y Y Y N N N Y Y Y Y Y N N N N Y Y N Y Y

15 NIB Y N Y Y Y Y Y Y Y N N N Y Y Y Y N N Y Y Y Y N Y Y

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16 SAMBA Y N Y Y Y N N N N N N Y Y N N N N N Y Y N Y N N N

17 Silkbank

Limited Y N Y Y Y Y Y Y Y N N Y Y N N N N N N Y Y Y N Y Y

18 Soneri Bank Y N N Y Y N Y Y Y Y N N Y Y Y Y Y Y N N Y Y Y Y Y

19 UBL Y N Y Y Y Y Y Y Y Y Y Y Y Y Y Y N N Y Y Y Y N Y Y

20 Bank Of

PunjabY N Y Y Y Y Y N N N N Y Y N N N N N N N N N Y Y Y

21 Citibank Y N Y Y Y Y Y Y Y Y N Y Y Y Y Y N N Y Y Y Y Y Y N

22 SCB Y N Y Y Y Y N Y Y Y N Y Y Y Y Y N N Y Y Y Y Y Y Y

23 RBS Y N Y Y Y Y N Y Y Y N Y Y Y Y Y N N Y Y Y Y Y Y Y

24 HSBC Y N Y Y Y Y N Y Y N N Y Y N N N N N Y Y Y Y N Y N

25 First

Women

Bank

Y N N N N N N N N N N N N N Y Y N Y Y N N N N N N

26 NBP Y N Y Y Y Y Y Y Y Y Y Y Y Y Y N N Y Y N N Y Y Y N

Table 15: Products offered by Consumer Banks

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Appendices 2Products Description

Current Accounts Account that offers non-interest based account that allows the accountholder to

write checks against the funds in account. You can draw cash any time. It is called a

checking account in the USA.

Current Yield Accounts Bank pays the consumer interest and you can draw cash any time.

Over Drafting Loan arrangement under which a bank extends credit up to a maximum amount

against which a current account customer can write checks or make withdrawals.

Saving Accounts Account from which withdrawals can be made, the interest accrues on the account

balance, the account does not have a maturity date, and it usually doesn’t have a

minimum balance.

Deposit Accounts The interest earning account, from which withdrawals are limited to the amount of

the account’s credit balance.

Foreign Currency

Accounts

A deposit account that is maintained in a local bank in a currency that is not the

local currency.

Lockers Safe deposit facility to the customers for safe keeping of the valuables like

documents, securities and jewelry etc.

ATM Cards A card issued by the bank that can be used for deposits, withdrawals, account

information and other types of transactions.

Debit Cards A plastic card that provides an alternative payment method to cash when making

purchases.

Credit Cards A part of a system of payments from plastic card issued to users of the system. It

entitles its holder to buy goods and services based on the holder’s promise to pay

for those goods and services later.

Prepaid Cards A card that the holder spends money which has been prepaid to a card. The value is

114 | P a g e

not physically stored on the card instead; the card number uniquely identifies a

record in a central database where the balance is recorded.

Cheques A demand draft drawn on a bank against the maker’s funds, to pay the stated

amount of money to the named party on demand on a stated date or after.

Personal Finance The use of the techniques of corporate finance in an individual’s money affairs,

especially the methods of allocation of financial resources.

Home Finance A loan secured by the collateral of some specified real estate property which obliges

the borrower to make a predetermined series of payments.

Auto Finance Allows the consumer to take a loan for the use of a motor vehicle.

Boat Loan Boat loan is available for people who wish to have a boat of their own. It is offered

internationally. Pakistan does not as such have a boat loan option.

Student Loans A loan offered to a student that is used to pay off education-related expenses. In

general, students are not required to pay back these loans until the end of a grace

period.

Business Finance An area of finance dealing with the financial decisions that the corporations make

and the tools and analysis used to make the decision.

Insurance The equitable transfer of the risk of a loss, from one entity to another in exchange

for a premium, and can be thought of as a guarantee and known small loss to

prevent a large loss.

Mobile Banking Performing balance checks, account transactions, payments etc. via mobile device.

E-Banking Customers can conduct financial transactions on a secure website operated by their

retail bank.

Travelers Cheque A preprinted, fixed amount cheque designed to allow the person signing it to make

an unconditional payment to someone else as a result of having paid the issuer for

that privilege.

Funds Transfer The process through which the funds from one account are transferred to another.

Utility Bill Payment The process of paying the utility bills through the bank with which the cardholder

has an account.

Table 16: Product Descriptions

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Appendices 3

Figure 10: The Loan Process

117 | P a g e

Appendices 4

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Figure 11: Credit Card Processing Form

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Appendices 5

UBL Credit Card

Annual Membership Fee NIL

Supplementary Card Fee NIL

Joining Fee NIL

Minimum Monthly Payment 5 % of the outstanding Balance or Rs. 200

Cash Advance Fee 4 % of the amount withdrawn or Rs. 750

Late Payment Fee 10 % of the minimum balance due or Rs. 1,000

Over Limit Fee Rs. 1,000

OTC Cash Payment Rs. 200 per transaction

Credit Guardian 0.79 % of monthly outstanding

Booking Charges - Balance Transfer 3 % of the amount booked or Rs. 500

Booking Charges - Installment Plan Rs. 250 per transaction

Cancellation Charges

Rs. 1,000 or 5 % of the installment outstanding

balance

Booking Charges - Cash on Phone Rs. 300 per transaction

Document Retrieval – Local Rs. 350 per doc

Document Retrieval – Foreign Rs. 900 per doc

Returned Cheque Fee Rs. 500 per cheque

Direct Debit Failure Fee Rs. 500

Temporary Credit Limit Enhancement Fee Rs. 750 or 4 % of enhanced credit limit

SMS Alert Fee Upto Rs. 50 per month

Card Replacement Fee Rs. 500

Emergency Card Replacement Rs. 1,000

Utility Bill Payment Upto Rs. 25 per transaction

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FX Conversion Charges on FCY Transactions Upto Rs. 25 per transaction

VISA/MasterCard Arbitration Charges for

Disputed Transaction USD 500 or equivalent

Issuance of Pay Order/Demand Draft Rs. 200

Safe Custody Fee on Post Date Cheque Rs. 500 per cheque

Galleria Picture Card Image Placement/

Replacement Fee Rs. 500

UBL PSO Auto Credit Card Conversion Fee Rs. 500 per card

Chip Maintenance Rs. 250

Cheque/Cash Pickup Fee Rs. 300 per pickup

Table 17: UBL Credit Card Charges

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