Bank Al Falah’s consistent track record of strong performance in Pakistan’s competitive banking sector has made it stand out as one of Pakistan’s leading banks and the flagship investment of the Abu Dhabi Group in Pakistan. Bank Al Falah distinguished itself through the introduction of innovative financial products including car financing which it introduced for the first time in Pakistan.
Bank Al Falah’s dynamic CEO, Sirajuddin Aziz, talks to Blue Chip about the bank’s success and his strategy for the future to ensure that Bank Al Falah retains its leading position as one of Pakistan’s premier banks.
Bank Alfalah has emerged as one of the leading banks in Pakistan’s competitive banking sector. What factors do you believe have contributed to its success?
Sirajuddin Aziz: “I think it has got more to do with having the right kind of vision to enter into a particular market. I think the Abu Dhabi Group, led by Sheikh Nahayan Al Mabarak Al Nahayan, had a very clear vision and knew exactly what the Abu Dhabi Group wanted to do. The first three years, 1997-2000, was the state of consolidation when the markets were being studied. From 2000 onwards, there was growth and progression. Bank Alfalah has grown from a three-branch network to almost 290 branches today, and by the end of this year, Bank Alfalah will have 320 operational branches in its network. That kind of growth in a span of less than 13 years of operation is phenomenal. There was a very definitive objective which was to create products and services that are now available to the marketplace at affordable prices.
If we look at Bank Alfalah’s strategy: around 2003-04, when the interest rates were at their lowest, the bank initiated consumer financing. We came in with products which were unheard of in the market, i.e. auto financing at a fixed rate for five years. We also came up with credit cards with the slogan: ‘Free Forever’. We are sticking to that even today, despite the cost pressures. Third, we came up with a home mortgage plan – with fixed interest rates for the first year, then arranging the facility of subsequent changes in the interest rates based on the borrowers’ convenience.
I think these were critical factors which allowed us to secure a major penetration into the consumer banking segment. Yes, it’s true that over a period of time when the interest rates started to climb up, consumer banking (during 2007-08 and right now) has come under pressure. But, I think that the earnings made and the clientele picked up are good enough to be able to sustain the institution through these challenging times. So, I think the strategy to penetrate the market, get the corporate and consumer banking platforms in place and seek integration between the two, have contributed to its success.”
As the flagship investment of the Abu Dhabi Group in Pakistan, what are the synergies between the bank and the Abu Dhabi Group as a whole?
SA: “The Abu Dhabi Group has been the guiding spirit of Bank Alfalah since its inception and has offered unwavering support to the institution in its 12 years of existence and continues to do the same. The Abu Dhabi Group has strategic investments in many ventures in Pakistan, all of which exceed U$1 billion. The ADG is quite optimistic about their stakes in the country and are progressing ahead with some new projects in the pipeline related to the health sector. The ADG operates with a philosophy that Pakistan is a second home to them and they have truly lived up to their core belief. The ADG strongly subscribes to being competitive and yet, at the same time, considers it its moral obligation to partake of the health, education and social sector improvements of the country. Bank Alfalah carries on the legacy and values of its owners in the same manner of manifesting competitiveness and practicing sensitivity to its environmental surroundings through its CSR activities.
The Abu Dhabi Group, as you might know, is not a legal entity. It is an informal group of investors, led by His Highness Sheikh Nahayan Mubarak al-Nahayan. They made further investments in Pakistan as a result of their positive experience with Bank Alfalah. They saw the returns which were very handsome and which encouraged them to make investments in other sectors of the economy.
After the banking sector, the Abu Dhabi Group entered the telecom sector and created Warid Telecom which is, today, possibly the third largest cellular company in Pakistan. Then, they came over with Wateen, which is a fibre-optic backbone link available to Pakistan. That company is also doing very well. They also branched out into other financial services like insurance, asset management and a brokerage house.
If you look at Pakistan today, I think the ADG should be the single largest foreign investor in Pakistan with over a billion dollars of investment into various segments. On top of that, they have a joint venture going with the Government of Punjab for the construction of Sheikh Zayed Centre in Lahore. One major differentiating aspect between other investors and the ADG is that the people of the UAE and the Government of the UAE and other people who run ADG have a strong sense of belonging to this country. They have mentioned time and again that they consider Pakistan as their second home.
There is also a certain feel-good factor, in terms of creating so many employment opportunities for Pakistanis. Bank Alfalah, when it was taken up by ADG, had a staff of 540 people. The level of automation in the bank at that point in time, which was then called Habib Credit Exchange Bank, was that it had just one electronic typewriter – that’s all! Today, you’ll find the latest technology. The staff has grown from 540 people to 7,600 people working only for Bank Alfalah, and also having branched out not just in Pakistan but also in Bangladesh with five branches and two in Afghanistan, a wholesale banking unit in Bahrain and an office in Abu Dhabi. So, we have branched out regionally as well.
Along with the sister companies, the ADG is responsible for creating employment opportunities for over 20,000-25,000 people and if you multiply that by a minimum size of say, four per family, they are touching 100,000 lives or more. Not to mention how on the periphery these 100,000 reach out to a greater multitude.”
How will Bank Alfalah continue to differentiate itself in the market?
SA: “Bank Alfalah Ltd. has its unique fortes. The most prominent one is our consumer banking portfolio. We are pioneers in the industry for our ‘Free Forever’ credit cards. We have innovative solutions for mortgage and car financing facilities. Also, Bank Alfalah has a significant share in the market for the SME portfolio. We focus heavily on the SME borrower as microfinancing and SME lending forms the backbone of the infrastructure of the country. The bank has an active and robust corporate banking platform. Bank Alfalah Ltd strongly adheres itself to its slogan of ‘The Caring Bank’ where our flawless customer services tend to be our hallmark. We try and live up to this slogan. Our attitude towards our customers is extremely friendly. If you walk into any of our branches, you’ll find the same caring attitude.”
What are your views on the regulatory environment governing the banking sector?
SA: “The landscape of the regulatory environment has undergone many changes in the past few years, for the better. We witness today, a more stringent, transparent and accountability-generating regulatory ambiance. Financial institutions are being monitored and guided at every step of the way, particularly after the global crisis which has affected the world – our local regulators have become even more cautious.
If you look at the region, Pakistan stands out beautifully tall. The regulators have done a wonderful job, in terms of not only fighting out what emerged as the result of the global financial crisis, coupled with our own economic situation, but the speed with which they have come back with the regulations – adding, altering and amending them.”
You spoke about service levels and that will be the differentiating force going forward. What is your HR strategy, especially in a country like Pakistan where there is a massive skills deficit as well?
SA: “Bank Alfalah has a headcount of 7600 employees across our local and regional presence. Our staff is selected through an exhaustive process of screening and interviews before being inducted. We follow a very well-defined HR policy where we focus on retention and have the lowest turnover according to the industry standards. Also, the bank heavily invests in training and development of its employees periodically to polish their skills. We have, for this purpose, state-of-the-art in-house training centres operating in Karachi and Lahore. We believe that for the best talent there is always demand and hence, we never close our doors for exceptional talent and neither do we believe in laying off staff, except only in cases of disciplinary violations on unethical grounds.
As far as the strategy is concerned, we are a growing bank and we intend to take in more people and create a congenial working environment. A recent survey’s results show that Bank Alfalah has emerged as the Most Preferred Employer in the financial industry. That again, is a reflection of the fact that we are pursuing the right kind of HR policy. The competitive spirit also allows people to excel, ensuring that while they are doing that, they are looked after by the institution.”
And this will be a long-term career prospect for them?
SA: “Bank Alfalah’s turnover rate is the lowest in the industry. The industry has something like 12% turnover which has stopped a bit, I think, because of the changes in the marketplace. But, in good times, say during 2005-06, the turnover rate in the banking industry was 12% while ours was less than 3%. People don’t leave. The environment is challenging, yet very friendly. Let me use the terminology: there is cutthroat competition coupled with cutthroat cooperation.”
Banks have taken large provisions against NPLs. Has there been any impact on your asset quality because of recession in Pakistan?
SA: “The banking industry in Pakistan has faced challenging times over the last year and is finally returning to normalcy after the time lag cycle; however, as an aftermath of this turmoil, financial institutions have booked heavy provisions due to loans turning sour or the asset cycle not matching the liabilities of the banks. This has certainly affected the asset quality somewhat. Bank Alfalah has always maintained a prudent stance: it has been conservative in its lending portfolio and managed to diversify well in avenues of corporate banking, equity markets, strategic investments, commercial banking and priority banking, etc. Therefore, the dent has not been severe in nature, in fact, we have managed to play it safe to a large degree – after all, we are sagacious custodians of the customers’ money.
Hopefully, the local industry should start to pick up as the signs now indicate that the macro-economic fundamentals are showing some recovery. The hemorrhaging of profitability as a result of NPLs is a phenomenon of the entire banking industry. For me to say that the Bank Alfalah is insulated from it would be very incorrect. We have our share of it. But again, compared to the industry, we are very low. Our NPLs are between 5.5-5.75% as compared to the industry’s average of 9.5%. So, it is well contained, however, even that causes a lot of pain and most of our efforts during 2009 have gone into recovery of these loans.
This phenomenon is very different from what Pakistan experienced during the late ’80s and early ’90s. The default rate was very high compared to the other economies of the region. But, at that point in time, the difference was that the borrowers were unwilling to pay, not unable to pay. Today, the situation is very different. The borrowers are willing to pay, but are unable to do that because of the liquidity and other persisting economic factors. They are cash-strapped because of various things that are happening. You must have read about circular debt, which is not just confined to the oil industry. My personal view is that as long as your customer is showing his face to you and is being honest with you about his problems – help him! In order to revive clients, we need to talk to them and give them concessions and remissions.”
And make it a win-win situation for the bank and for the customer…
SA: “Otherwise, if all banks take a very stringent view on recovery and say ‘sorry, if we were charging you 2% over KIBOR previously, and now, because you’ve come in for restructuring, we are going to charge you 5% over KIBOR,’ essentially, the bank is going to pressurize him further. Instead of 2%, we are going to offer him some leeway. Give him some concession for him to be able to stand up on his feet again. That is the attitude we have taken as a management. That is how we are reaching out to our clients.”
How do you plan to attract customers in this high interest rate, volatile environment?
SA: “Gone are the days when banking spreads were exceptionally high and the profit margins were generous. The interest rate hike is attributable to the rising level of inflation in the economy and hence high interest rates are operative from both sides of the fence i.e. borrowing and lending. Therefore, we also offer customers lucrative rates on their deposits with an assurance of the brand with which they bank – the reliability factor of the institution which stands unquestionable especially in today’s uncertain times. We trade with our valued customers, their peace of mind, and they are comfortable with paying a small premium for that.
The consumer market does well most when the interest rates are on a downward trend. Pakistan peaked up to a discount rate of 15%, but now its back to 13% and there is a likelihood of some revision in the policy rates towards a downward approach. So, if the interest rates are low, consumerism tends to grow. People will be tempted to use their credit cards again. They might like to have their split units replaced or other home appliances. So, that would help and I don’t think there is any loss. As a nation, we are extremely impatient which pervades all our attitudes. If something doesn’t do well in six months, we start losing interest in it which is wrong.
Consumer banking must be promoted. If you look at the newly industrialised countries in North East and South East Asia – how did they prosper? They prospered because there is consumerism in their society. The fundamental difference between them and us is that when Pakistan was doing that, it did not concentrate on developing the industry around consumer banking i.e. if people were manufacturing cars and selling them, at least the steering wheels or the gear boxes should have been manufactured in Pakistan. So, the vendor industry did not take off. If you look at the first joint venture agreement Pakistan had with a Japanese automobile manufacturing company, there was a clause which stated that through deletion program 70% of the components were meant to be manufactured locally over a given time frame. The thought process was perfectly in order but implementation was lacking. If you look at the countries who have implemented this – China is one example – they have done exceedingly well.”
What do you think the next generation banking products will be and do you feel Pakistan is ready for more sophisticated products such as student loans, etc.?
SA: “70% percent of Pakistan’s population is dwelling in rural areas and only 30% constitutes the urban society. Therefore, a great majority is actually the unbanked population, which has neither access nor awareness about basic banking products. Hence, it is this market which we need to focus on first. Financial outreach is primary and as a next step we can add sophistication. Having established that, it doesn’t rule out the possibility of introducing a range of sophisticated products for the affluent, as there is definitely a huge potential there – but, we need to define our priorities at the moment keeping in view the market dynamics of our country.
I think those who take advantage of technology currently available, are the ones who are going to introduce these new generation of products and services. They’ll largely be based on telecoms. Those who rely on telephony and create products and services there will have the advantage. I think these are the products that are going to become very popular. I can say with certainty, by the Grace of God, Bank Alfalah is moving in that direction. And in 2010-11, several electronic products will be launched. We are in the process of developing mobile banking products to facilitate customer convenience and ensure that the bank reaches out to the customer instead of the other way round.”
What are the main challenges you face in Pakistan?
SA: “As a country, we suffer from volatile market situation, weak infrastructure and support system, and need greater control systems in our institutional regulations. We are generally a nation which operates on extremes; we either plunge into risks undauntingly or we remain complacent. Innovation is only achieved through calculated and smart measures towards embracing change and we have a long way to go for that. We face technological glitches and a dearth of talent as well. External factors such as law and order situation, power supply failures and hiked up inflation levels tend to create uncertainty in the market dynamics.”
How do you plan to deploy IT to enhance performance and efficiency in the bank?
SA: “The bank has recently undergone some strategic restructuring. As part of this significant change, one of the factors which has been paid attention to is the existing banking system. The bank is operating on a system called ‘Bank Smart’ and we are in the process of migrating to superior software called Temenos. This would greatly add to our efficiency and reduce the turnaround time for transactions, at the same time increasing the transparency of operations. It will also help in reducing many process-oriented redundancies and duplications. The new system is already operational in select branches and is in its roll-out phase to cover other branches. It is the latest software in banking applications used globally and it allows us to integrate the entire branch network on real-time basis. With just a click of the button, one will be able to know exactly who deposited what in Sialkot or Gujranwala and what withdrawal took place in Quetta. So, that’s going to give us a major advantage in terms of our balance-sheet management including extremely efficient cash management.”
Can you tell us about your background?
SA: “Well, I got into banking by mere chance. I always enjoyed appearing for interviews although without any intentions of taking up the offers! At one occasion, I read this ad in the newspaper by a Luxembourg-based bank which wanted management trainees with a stipend of US$300 during training. I can assure you – all of us from the university who applied – it was not because of the bank being based in Luxembourg or because it offered a career – it’s the $300 that attracted us! So I applied and lo and behold, I get a call from the bank house to appear for an interview. I had been appearing for interviews and knew the type of questions asked: general knowledge, economics, my scholastic record and everything that goes with it. Now here was Mr. Abedi whose first question to me was not on economics or the Greek currency as one might have expected: ‘Where do you find solace?’ I thought to myself, is he a banker? And then for the next 45 minutes I was in conversation with this individual who mesmerised me with his thoughts. I gave my view of where I find solace. He gave his view of it and then obviously, being a senior banker and a giant, he guided me towards my thought process. I came back and told my father, ‘I am working for this man come what may!’ Since then, I’ve never looked back on the decision!
Apart from my professional engagements, I am an extremely private and aloof individual. I thoroughly enjoy spending time with myself. My father has played a major role in my upbringing and he instilled in me a passion for books. I have to my credit, published English poetry book. I often write for national and international papers on subjects of geo politics, social issues, travelogues and religion.”
What’s your vision for the future of the bank?
SA: “The future of Bank Alfalah is bright and positive hence the strategy is geared towards achieving that. Bank Alfalah plans to expand its operations further in the country. We intend to go aggressively in microfinance and SME lending. We also plan to strengthen our existing relationships and enhance our control levels even further for the security of our valued customers. Bank Alfalah has many innovative products in the pipeline and aims to offer more value to all its stakeholders.”