Exploring Pakistan’s banking industry evolution:
In September 2021, CIMA Pakistan had an opportunity to talk to Abadullah, the Chief Compliance Officer of Faysal Bank at Faysal House. Abadullah graciously shared his views on the new technology solutions that Faysal Bank is using and the overall evolution of the banking sector, especially in Pakistan. Here’s what we asked him:
What are your thoughts about the evolution of Pakistan’s banking sector?
Under the supervision of an agile regulator like the State Bank of Pakistan (SBP), I believe Pakistan’s banking sector has shaped up very well and is on extremely sound footing. We’re seeing an evident acceleration in economic activity across all sectors, which directly supports growth as businesses and people earn more. Private sector and household deposits with banks in Pakistan grew by 22% — the fastest pace in 14 years — and reached a record high of around Rs.18.5 trillion. We’re seeing a very visible economic turnaround, with an expected average deposit growth of 15% over the next three years. Despite the pandemic, our overall economy grew by 4%, and remittance transactions increased by 27% to 29.4 billion dollars. The total assets in the banking sector grew by 14% in 2020. Investments in T-bills are at 13.9 trillion (29% growth), and car sales were also higher in 2020–21. Up until June 2021, 238,000 cars were sold nationwide, and this amount is projected to reach 300,000 by year-end. The profitability of the banking sector grew by 30%, total assets by 4%, deposits by 22% (18.5 trillion), and advances rose by 10% (about 9 trillion).
What does the future of Pakistan’s banking sector look like?
I am very optimistic and am on board with the projected growth of 15% over the next three years. Across the country, financial institutions are focusing on building financial and operational resilience to face environmental, social and governance challenges. I’d say that the top priority for the banking industry in Pakistan now is to ensure investor confidence. In the near term, these are some of our immediate challenges:
• To manage the vast operating expenses involving governance and compliance
• Managing fraud while moving towards more digitised operations
• Boosting competitiveness with an expected increase in fintech firms
• Dealing with cost issues on regulatory compliance and cybersecurity
Having said this, I am confident that Pakistan’s banking industry will have huge growth prospects .
What role can the banking sector play to grow the economy?
I’d say some of the key roles the banking sector can get involved in economic recovery are:
• Encourage financial inclusion by increasing digital channel adoptions, which allows banks to reach out to more people.
• Create innovative new products and solutions that meet customers’ requirements and needs.
• Develop effective compliance teams and procedures, which minimises SBP penalties and increases public trust in the banking industry
• Increase public awareness of banking products and services, which encourages monetary mobility in the economy
What are some of Faysal Bank’s key initiatives to support economic growth?
At Faysal Bank, we are aligned with SBP’s agenda of growing the overall economy in Pakistan by enhancing public purchasing and spending power through innovative, need-based schemes. We’ve implemented these SBP schemes for our customers:
• Prime Minister Kamyab Jawan — Youth Entrepreneurship Scheme (PMKJ-YES)
This scheme was launched in 2020 to encourage young entrepreneurs to start businesses and reduce unemployment. Under the scheme, the Pakistan government and SBP provide subsidies on advances and loans taken by those establishing start-ups.
• Infrastructure, Housing & SME Finance Department (IH&SMEFD)
This department was established in 2011 to promote the growth of small and medium enterprises within priority sectors. SMEs account for more than 90% of the total business establishments in Pakistan. They create new jobs and facilitate wealth creation, provide essential business infrastructure for large enterprises, and are the basic source of innovation and entrepreneurial activity — so we are committed to supporting them.
• Naya Pakistan Certificates (NPC) NPCs
are based on a Mudaraba structure, whereby the investor invests in a Mudaraba pool that is used to extend Shariah-compliant financing to the Pakistan government. The investments obtained are remunerated from the profits earned by this pool. The Pakistan government has created the Islamic Naya Pakistan Certificate Company Limited (INPCCL), which is managed by SBP, to handle these certificates. Along with lucrative returns for investors, these certificates also provide NRPs with an opportunity to contribute towards the development of a progressive Pakistan.
This conversation was a part of a recent focus group discussion with Mr. Abadullah where our CIMA® members were also part of this discussion. These members are working as Pakistan’s leading finance professionals and in this discussion they learn more about development in the banking industry and how the CGMA® designation can play a part in promoting industry growth.
Besides Abadullah, others that were present at this discussion were:
• Syeda Sana Kaukab, ACMA, CGMA — Membership Manager, The Institute of Chartered Accountants of Pakistan
• Saba Sodher, FCMA, CGMA — Vice President, Standard Chartered Bank
• Sumaira Naz — South Market Head, CIMA Pakistan
• Ahmed Ateeq, FCMA, CGMA — SEVP, JS Bank
• Syed Faisal Bukhari, ACMA, CGMA — Unit Head, Bank Al Habib
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