Exclusive Interview with Mr Atif Bajwa, CEO Bank Alfalah

By: Erum Zaidi From Print Edition

KARACHI: Atif Bajwa, CEO Bank Alfalah (BAFL) is a veteran banker with global professional experience of over three decades of serving several international as well as local banks. He started his career with the Citibank in 1982 and assumed various roles with the bank for 11 years across Karachi, Lahore, New York and Bahrain. He also worked in ABN AMRO and MCB Bank. Following are excerpts from an exclusive interview.
Q. What are the major challenges and opportunities confronting banking sector in Pakistan? A. The financial services sector has experienced a hard-hitting impact and there are several lessons to be learnt from the global meltdown. This backdrop coupled with the dismal local economic outlook exacerbates the challenges for the banking industry in Pakistan customers are not confident of countrys situation; foreign entities are apprehensive of the operating risk. Moreover, whilst banks (including Bank Alfalah) continue to report strong profits, there has been growing concern in the industrys rising trend of non-performing loans (NPLs), peaking at approximately 17 percent. Bank Alfalahs NPLs reflect a lower position vis--vis the industry, at less than 9 percent. However, greater focus and improvements in risk management are required to create discipline and tackle this issue. Second is the dependence of the sector on high spreads. Whilst the cause of significant spreads lies primarily in the countrys macroeconomic imbalances (manifested through a large fiscal deficit leading to high government borrowing), the banking sector is both

benefiting from it and being drugged into easy profits. This has created the industry into a profitable one but is really like a plane flying on one engine. It is critical that diversification of revenue sources is pursued. The good news is the creation of an ecosystem that supports innovation through technology, allowing for the banked and yet-to-be-banked to meet more of their payment/financial needs through a convenient set of products and services. As electronic solutions will encompass customer convenience and ubiquity, branchless, mobile, online and digital banking, both for corporate and retail banking, customers are also likely to revolutionise the financial services industry and Bank Alfalah aims to be amongst the leaders of this transformation. SME banking and agri-finance are also promising opportunities and address sectors that are the backbone of our economy. Bank Alfalah aims to continue investing in these areas through tailored solutions for each segment, whilst remaining cognisant of and appropriately managing the risks involved. One other area of focus for us is the nascent capital market in Pakistan. It is critical that a vibrant and broad based capital market be developed in order to support the financing needs of a growth economy. The existing short-term debt focused capital markets are woefully inadequate to meet the requirements of industry and infrastructure if our economy is to shift gear into higher growth rates. We believe we should be playing a leading role in helping to mobilise capital and to deploy it effectively. Q. What potential do you think the SME sector has to flourish in Pakistan? Can you describe BAFLs performance in this area? A. Today, in Pakistan, the SME sector contributes 30 percent towards the countrys GDP, employs more than 70 percent of the non-agricultural workforce, accounts for 35 percent of the value added in the manufacturing industry, and generates 25 percent of export earnings. However, SME lending constitutes only 16 percent of total lending and only 4 percent of total banking customers. The sector has huge potential to generate employment opportunities and play a role in alleviating poverty. The sustained and long-term growth of the SME sector in Pakistan faces several challenges on both the demand and supply side. Most SMEs are sole proprietorships or family businesses that are managed rather informally and therefore face issues such as lack of formal business management skills, poor maintenance of accounts and lack of business planning amongst others. They often do not have adequate collateral to meet the minimum criteria of banks and have little awareness about the financing options available. While access to capital is invariably an issue, more pressing needs are non-lending.

We are currently undertaking a pilot project, in collaboration with the International Finance Corporation (IFC), to remodel our SME strategy and better cater to this niche segment. We are optimistic that this endeavor will allow us to better assess and understand the specific needs of SME businesses and enable us to offer a holistic yet bespoke SME-centric business management platform. Such an offering shall not only support the borrowing requirements of SMEs but will also offer products and services to support their transactional and advisory requirements. Q. What product launches do you have in the pipeline? A. We see convenience and ubiquitous access to financial services as vital requirements today. To this end, we are investing in our technology platform and will be launching branchless banking, mobile and internet banking services in the near future this year. Through electronic solutions, clients will be able to make utility bill payments and fund transfers and buy airtime and conduct several financial transactions at their own time and convenience. On the deposits front, we hope to enhance our portfolio with segmented products for salaried individuals, kids, senior citizens and women. We are also looking to introduce a chip-based credit card soon. For protection products, we are linking up with more insurance partners to enhance our bancassurance suite with unique, customized offerings. We are also simultaneously working on developing a fully integrated cash management collection/payment suite for our institutional clients. Q. How did Bank Alfalah perform during 2012? A. The year 2012 has been an evolving, transformative but most importantly productive year for the bank. The bank has outpaced the industry in terms of private sector lending. As part of our branch expansion plan, we have added 65 new branches to our already vast branch network during 2012. This year, we intend to further expand our footprint in the country. We have also introduced relevant management changes and reassessed our operating priorities, while ensuring that our overall growth trajectory sustains its momentum. Due to the efforts of our entire team, I am pleased to report that our deposits, advances and profitability have all witnessed significant growth over 2012. Q. How does BAFL distinguish itself from its competitors? A. Bank Alfalah started out with a footprint of 3 branches. Over the last 15 years, our growth story in Pakistan has been significant. We have closed last year with a network spanning 471 branches across 163 cities and an overseas presence in Afghanistan, Bangladesh and Bahrain. We are well aware that a one-size fits all approach does not work effectively to this end we have segmented our product offering so as to ensure a unique strategy for each requirement.

We have implemented new procedures and systems at all our conventional branches and in the upcoming months. Our Islamic branches will follow suit. Transactional services will become faster as a consequence of this change and hence customer interface should be more efficient. Amongst other priorities, as mentioned above, we are also keen to work on developing need-based, customised financial solutions with a view to introducing a larger proportion of the unbanked population into the formal fold. Our bricks-and-mortar banking model coupled with our branchless banking services should bolster our efforts on this front. With the shift of wealth from big cities to smaller towns and rural areas, there is an appetite in these markets and so it makes sense to open smaller branches to tap the potential there. Moreover, our Islamic banking also sets us apart the banks Islamic arm is a vibrant identity offering an innovative range of Shariah compliant products and services customised to cater to the individual needs of our customers. We are the no.2 Islamic bank in Pakistan with new branches being added to our network of 86 Islamic banking branches as we speak. The bank aims to invest in its core strengths to provide best in class products and services on the consumer and corporate side, whilst also further exploring opportunities in SME and agri-finance.