The resurgence of consumer banking and finance.
Any discussion about Pakistani banking tends to elicit divergent opinions. This is understandable because for an economy as undocumented as Pakistan’s, accurate numbers are hard to come by, even in an industry as heavily regulated as Pakistani banking. Pakistan is unique in the sense of being one of the few countries that can boast of a number of banks that operate within its geographic boundaries for periods that predate its existence. As the young nation struggled to get off to a promising start, banks formed the core of the services industry and were key employers for the educated members of the workforce, which included a large number of refugees from India.
Pakistani banking grew as did the economic prospects of the country. An increase in multinational interests brought many mercantile banks from abroad, while many major business houses established locally-owned commercial banks.
With the opening of the economy and the entry of foreign brands, banks capitalised on both, secured and unsecured lending with a ballooning portfolio of credit cards, personal loans, auto-financing and even mortgages.
However, this changed with the nationalisation of the major banks in 1974, as part of a larger economic reorientation in the country. While many people tend to remember nationalisation as the nadir of Pakistani banking (which it unfortunately did turn out to be), not many of them remember that it was part of a broader vision to provide banking to a larger segment of the population, as well as improve access to banking services in under-served and rural areas. The fact is that post-privatisation, Pakistani banks had a ready-made critical mass of low-cost deposits across the length and breadth of the country, as well as a branch network that served as an example of market potential, is forgotten.
Come the nineties and the post-martial law governments reoriented the economy to a more outward looking slant. Also, like Pakistani banking, Pakistani consumers changed too. The opening of the economy, along with the rise of satellite TV, the Gulf boom, mobile telephony and the arrival of the internet, significantly changed consumer preferences. Despite the ‘on again, off again’ recessive tendencies of the economy, increased competition among banks forced them to look beyond corporate and high-net-worth customers. This broadening of the target audience brought consumer banking in its true form to the Pakistani market.
The rise of consumer banking fed an almost insatiable urge among Pakistanis for brands in terms of automobiles (including Honda, Toyota and Suzuki), consumer durables and electronic appliances such as Haier, Orient, Pel, Super General and Waves. With the opening of the economy and the entry of foreign brands, banks capitalised on both, secured and unsecured lending with a ballooning portfolio of credit cards, personal loans, auto-financing and even mortgages.
Reporting for Aurora during those exciting times, I met a number of bankers across the three main segments of the industry. These were the large, formerly nationalised banks and subsequently dubbed the ‘Big Five’, multinational banks and locally-owned private banks (which were thriving by catering to middle-class customers). Being part of a marketing publication, my focus would be on optics of growth in the industry as well as the advertising that it produced.
Pakistan’s economy did once again see significant recessive tendencies during the post Musharraf/Great Global Recession period, and with major implications for consumer banking.
Those were exciting times as for the first time, banks opted for high-cost productions, TVCs, cross branding, merchant alliances, brand partnerships and direct-to-consumer campaigns. Product development was in overdrive and products from other Asian economies were replicated at lightning speed, along with a drive for deposits and lending that mimicked a full-scale pricing war. Added to this, much work was undertaken in alternative delivery channels such as internet banking and ATMs (with the launch of two countrywide network switches).
My discussions with consumer bankers during that time had three broad themes: consumer banking was causing the overall growth in sectors such as travel, automobiles, home appliances and consumer electronics; the industry was extremely profitable (by some estimates, among the top five most profitable in the world), but subject to consolidation in the future resulting in fewer, albeit larger players; and although default rates were low (as low as 1.5%), this could change as borrowed assets aged or if the economy experienced another downturn.
Fifteen years and a stint working with two major banks later, I saw all these trends play out in different ways. Pakistan’s economy did once again see significant recessive tendencies during the post Musharraf/Great Global Recession period, and with major implications for consumer banking, particularly in terms of unsecured lending.
With the mainstays of consumer banking again on the uptick, coupled with factors such as a consolidated banking sector with fewer players and the opportunities presented by CPEC, the fundamentals of the Pakistani economy show enough promise to keep banks interested.
When I left Pakistan, the industry seemed to be on the cusp of a major consolidation and the focus had once again shifted to core banking products, particularly low-cost deposits, SME-secured lending and inward remittances. Banks had started parking more money in high-yield government securities.
Added to this, the increasing paid-up capital requirements and other regulatory tightening by the State Bank of Pakistan on marketing, coupled with limited legal recourse against defaulting customers, had made consumer banking outreach fairly limited for most banks.
Five years later, things are starting to change. With the maturing of a lot of those high-yield government securities, along with pressures on traditional banking revenue streams, it seems banks are now flush with cash and are once again willing to look at consumer banking as a way to augment revenue in the face of low discount rates.
With the mainstays of consumer banking (automobiles, electronics, travel and mortgages) again on the uptick, coupled with factors such as a consolidated banking sector with fewer players and the opportunities presented by CPEC, the fundamentals of the Pakistani economy show enough promise to keep banks interested.
One hopes that the best days of the industry still lie ahead.
Tariq Ziad Khan is a marketing professional who has worked with major brands in banking, advertising and the media in Pakistan. He is currently based in the US. email@example.com
First published in THE DAWN OF ADVERTISING IN PAKISTAN (1947-2017), a Special Report published by DAWN on March 31, 2018.