Banking Industry of Pakistan
Content
Banking Industry of Pakistan
In Pakistan all banks & DFI’s work under the supervision of state bank of Pakistan. There are four major sectors in which SBP has divided banks operations. Corporate sector SME Agriculture Consumer sector
SBP provide regulations according to which all banks should work &continuously keep track that banks are complying through the regulations or not.
Products/Services in Banking Sector
Some major services in banking industry of Pakistan;
•
• • • • • • • • •
Current accounts Remittance services Investment banking Running finance Online banking Telephone banking Personal loans Credit cards Demand draft Term accounts
• • • • • • • •
Traveler checque Business loans Debit cards Mobile banking Lockers facility Saving account Home loans Internet banking
WHAT IS CONSUMER FINANCING?
Institutional arrangements that provide consumers with financing support to enhance their consumption and, as a result thereof, improve their standards of living, fall within the broad definition of Consumer Finance. ‘Consumer individuals household ‘Consumer O O O O financing’ means any financing allowed to for meeting their personal, family or needs. The facilities categorized as financing’ include
Credit Cards Auto Loans Housing Finance Personal loans
However, the semantics of financial markets generally tend to exclude housing finance from this range treating it as a distinct financing product essentially because of its long-term nature.
Once upon a time, banking used to be all about saving and interests. No more, no less… in the current age of cutthroat competition, it becomes a prerequisite to success to have a large and successful portfolio of products and services with which the banks can woo and then wow their customers. Here in come offerings such as loans, credit cards, easy installments and what not. If you want a BMW in a draw, get a credit card, they say… or if you want to go to Dubai, get a credit card! It has been through this concerted thought that the concept of consumer banking has become so prevalent in Pakistan. However, it was not always like this. Not every bank could offer a credit card and not all of the banks could offer the services so consistently that do now. There were but a few multinational banks that attempted to offer anything remotely resembling consumer banking. It was at this point that the State Bank introduced certain reforms, and many national banks were privatized. At the same time, there was a paradigm shift with respect to the approach of many a bank with a huge base of customers in the urban sector. These banks began to take an increasingly market oriented approach and became the forerunners for more than 5 years of growth of consumer banking in Pakistan.
Products/Services of Consumer Banking
Auto Loans
In Pakistan auto loans are purchase of brand new or used, imported or local cars for private use. Auto financing and auto leasing both facilities are offered by most of the banks. The average market rate for auto loans is 14-16%
Home Loans
The loans taken for buying, buildings or renovating of house/land are classified as home loans. For home loans both variable & fixed rate options are available
Personal Loans
These are generally unsecured type of loans but in certain cases when the amount of personal loans increases the normal limit its remaining portion must be secured.
Credit-Debit Cards
Credit cards allow a customer to make payments on credit. Initially foreign banks were offering these cards but now many local banks are also offering credit cards facility.
Debit cards are issued to the account holder of any bank in Pakistan almost all the banks are offering this facility. The amount used by debit card holder is automatically debited from the account of card holder.
Deposit Accounts
All commercial banks are offering different kinds of deposit accounts. These accounts range from customer to customer to fill the need of every type of customer. Some major categories are: • • • • • Current accounts Saving accounts Business accounts Term deposit accounts Foreign currency accounts
Wealth Management
Wealth management service is a new kind of service introduced in consumer banking now days. It covers all aspects of securing future of bank's customer. It includes insurance, tax advisory, financial consultancy, investment plans etc.
E- Banking
To facilitate its customer all local& foreign banks are offering high technological e-banking services. Some
of the major banking services provided by the banks are; • Phone banking • Internet banking • Online banking • Mobile banking • ATM
SBP Prudential Regulations for Consumer Financing
The state bank of Pakistan has divided the consumer financing in its prudential regulations into four major areas which are; • • • • Credit Cards Auto Loans Home Loans Personal Loans
Auto Loans
The vehicles to be utilized for commercial purposes shall not be covered under the prudential regulations for consumer financing The maximum tenure for the auto loans finance shall not exceed 7 years.
While allowing auto loans, the banks/DFI shall ensure the minimum down payment does not fall below 10% of the value of the vehicle. The banks/DFI shall ensure vehicle remains properly insured at all times during the tenure of the loan The banks/DFI should ensure the good number of authorized auto dealers is placed at their panel to eliminate the chances of collusion unethical practices.
Home Loans
Banks/DFI’s shall determine the housing finance limit, both in urban and rural areas, in accordance with their internal credit policy, credit worthiness and loan repayment capacity of the borrowers. The housing finance facility shall be provided at maximum debt-equity ratio of 85:15. Banks/DFI’s are free to extend mortgage loans for housing, for a period not exceeding 20 years. The house finance by the bank/DFI shall be mortgaged in banks/DFI’s favor by way of equitable or registered mortgage
Personal Loans
The clean limit per person for personal loans will generally not exceed Rs 500,000. Banks/DFI’s may assign clean limit beyond Rs 500,000 but not in excess of Rs 2 million to their prime customers who have extraordinary strong repayment capacity.
In case where loan has been extended to purchase some durable goods/items, including personal computers etc, the same will be hypothecated with the bank/DFI besides other securities, which the bank/DFI may require on its own. In case of running finance, it shall be ensured that at least 15% of the total utilization of the loan during the year is cleaned up by the borrower for a minimum period of 1 week.
Credit Cards
The banks/DFI shall take responsible steps to satisfy themselves that cardholders have received the cards, whether personally or by mail. Banks/DFI’s shall provide the credit card holders, the statement of account at monthly intervals. Due date of payment must be specially mentioned on the account statement. Maximum unsecured limit under credit card to borrower shall generally not exceed Rs 500,000. Banks/DFI’s may also allow financing under the credit card scheme in excess of Rs 500,000/-(up to Rs 2 million) to other customers as well, provided the excess amount is appropriately secured.
Credit Information Bureau
INTRODUCTION
The bureau is a repository of credit information of borrowers. The member lending institutions provide credit data of their borrowers to the bureau which consolidates, updates, and store the same and provide information to its members. History of CIB The CIB is a public sector credit bureau of Pakistan was established in 1992 by the SBP under section 25(A) of banking company’s ordinance 1962. Role of CIB The CIB plays an important role in promoting financial discipline, better credit risk management and prudent lending decisions.
Contribution of Consumer Banking in Economic Development
Lending through credit cards, personal loans, and auto loans, loans for durable and housing finance emerged main stream of consumer finance. The shape domestic demand and lending strategy by the banking sector in quite subtle ways. Consumer finance has also brought social change through higher circular of money and relaxation of income constrains for borrowing particularly among those middle class segments that were eager to become part of growing economy and keen to benefit from economic growth.
Analysis and Findings
• • • • Challenges Problem faced by borrowers Problem faced by lenders Opportunities
Conclusion and Recommendations Conclusion
The consumer banking industry has many opportunities to grow, customer wants convenience mode of banking for which new products& services should be introduced. Wealth management service which is a new service in Pakistan consumer banking industry .Its awareness should be increased. Improper guidance, slow processing and bank statements are the major problems faced by the bank’s customer in getting consumer loan. The reason is that people applying for loan don’t have proper in formation about the requirements by the banks and due to high number of application lengthy procedure by banks loan processing is very slow. Despite of many changes by the banks in their policies and strict regulation by SBP still bank's customers are facing hidden charges problem.
In Pakistan all banks & DFI’s work under the supervision of state bank of Pakistan. There are four major sectors in which SBP has divided banks operations. Corporate sector SME Agriculture Consumer sector
SBP provide regulations according to which all banks should work &continuously keep track that banks are complying through the regulations or not.
Products/Services in Banking Sector
Some major services in banking industry of Pakistan;
•
• • • • • • • • •
Current accounts Remittance services Investment banking Running finance Online banking Telephone banking Personal loans Credit cards Demand draft Term accounts
• • • • • • • •
Traveler checque Business loans Debit cards Mobile banking Lockers facility Saving account Home loans Internet banking
WHAT IS CONSUMER FINANCING?
Institutional arrangements that provide consumers with financing support to enhance their consumption and, as a result thereof, improve their standards of living, fall within the broad definition of Consumer Finance. ‘Consumer individuals household ‘Consumer O O O O financing’ means any financing allowed to for meeting their personal, family or needs. The facilities categorized as financing’ include
Credit Cards Auto Loans Housing Finance Personal loans
However, the semantics of financial markets generally tend to exclude housing finance from this range treating it as a distinct financing product essentially because of its long-term nature.
Once upon a time, banking used to be all about saving and interests. No more, no less… in the current age of cutthroat competition, it becomes a prerequisite to success to have a large and successful portfolio of products and services with which the banks can woo and then wow their customers. Here in come offerings such as loans, credit cards, easy installments and what not. If you want a BMW in a draw, get a credit card, they say… or if you want to go to Dubai, get a credit card! It has been through this concerted thought that the concept of consumer banking has become so prevalent in Pakistan. However, it was not always like this. Not every bank could offer a credit card and not all of the banks could offer the services so consistently that do now. There were but a few multinational banks that attempted to offer anything remotely resembling consumer banking. It was at this point that the State Bank introduced certain reforms, and many national banks were privatized. At the same time, there was a paradigm shift with respect to the approach of many a bank with a huge base of customers in the urban sector. These banks began to take an increasingly market oriented approach and became the forerunners for more than 5 years of growth of consumer banking in Pakistan.
Products/Services of Consumer Banking
Auto Loans
In Pakistan auto loans are purchase of brand new or used, imported or local cars for private use. Auto financing and auto leasing both facilities are offered by most of the banks. The average market rate for auto loans is 14-16%
Home Loans
The loans taken for buying, buildings or renovating of house/land are classified as home loans. For home loans both variable & fixed rate options are available
Personal Loans
These are generally unsecured type of loans but in certain cases when the amount of personal loans increases the normal limit its remaining portion must be secured.
Credit-Debit Cards
Credit cards allow a customer to make payments on credit. Initially foreign banks were offering these cards but now many local banks are also offering credit cards facility.
Debit cards are issued to the account holder of any bank in Pakistan almost all the banks are offering this facility. The amount used by debit card holder is automatically debited from the account of card holder.
Deposit Accounts
All commercial banks are offering different kinds of deposit accounts. These accounts range from customer to customer to fill the need of every type of customer. Some major categories are: • • • • • Current accounts Saving accounts Business accounts Term deposit accounts Foreign currency accounts
Wealth Management
Wealth management service is a new kind of service introduced in consumer banking now days. It covers all aspects of securing future of bank's customer. It includes insurance, tax advisory, financial consultancy, investment plans etc.
E- Banking
To facilitate its customer all local& foreign banks are offering high technological e-banking services. Some
of the major banking services provided by the banks are; • Phone banking • Internet banking • Online banking • Mobile banking • ATM
SBP Prudential Regulations for Consumer Financing
The state bank of Pakistan has divided the consumer financing in its prudential regulations into four major areas which are; • • • • Credit Cards Auto Loans Home Loans Personal Loans
Auto Loans
The vehicles to be utilized for commercial purposes shall not be covered under the prudential regulations for consumer financing The maximum tenure for the auto loans finance shall not exceed 7 years.
While allowing auto loans, the banks/DFI shall ensure the minimum down payment does not fall below 10% of the value of the vehicle. The banks/DFI shall ensure vehicle remains properly insured at all times during the tenure of the loan The banks/DFI should ensure the good number of authorized auto dealers is placed at their panel to eliminate the chances of collusion unethical practices.
Home Loans
Banks/DFI’s shall determine the housing finance limit, both in urban and rural areas, in accordance with their internal credit policy, credit worthiness and loan repayment capacity of the borrowers. The housing finance facility shall be provided at maximum debt-equity ratio of 85:15. Banks/DFI’s are free to extend mortgage loans for housing, for a period not exceeding 20 years. The house finance by the bank/DFI shall be mortgaged in banks/DFI’s favor by way of equitable or registered mortgage
Personal Loans
The clean limit per person for personal loans will generally not exceed Rs 500,000. Banks/DFI’s may assign clean limit beyond Rs 500,000 but not in excess of Rs 2 million to their prime customers who have extraordinary strong repayment capacity.
In case where loan has been extended to purchase some durable goods/items, including personal computers etc, the same will be hypothecated with the bank/DFI besides other securities, which the bank/DFI may require on its own. In case of running finance, it shall be ensured that at least 15% of the total utilization of the loan during the year is cleaned up by the borrower for a minimum period of 1 week.
Credit Cards
The banks/DFI shall take responsible steps to satisfy themselves that cardholders have received the cards, whether personally or by mail. Banks/DFI’s shall provide the credit card holders, the statement of account at monthly intervals. Due date of payment must be specially mentioned on the account statement. Maximum unsecured limit under credit card to borrower shall generally not exceed Rs 500,000. Banks/DFI’s may also allow financing under the credit card scheme in excess of Rs 500,000/-(up to Rs 2 million) to other customers as well, provided the excess amount is appropriately secured.
Credit Information Bureau
INTRODUCTION
The bureau is a repository of credit information of borrowers. The member lending institutions provide credit data of their borrowers to the bureau which consolidates, updates, and store the same and provide information to its members. History of CIB The CIB is a public sector credit bureau of Pakistan was established in 1992 by the SBP under section 25(A) of banking company’s ordinance 1962. Role of CIB The CIB plays an important role in promoting financial discipline, better credit risk management and prudent lending decisions.
Contribution of Consumer Banking in Economic Development
Lending through credit cards, personal loans, and auto loans, loans for durable and housing finance emerged main stream of consumer finance. The shape domestic demand and lending strategy by the banking sector in quite subtle ways. Consumer finance has also brought social change through higher circular of money and relaxation of income constrains for borrowing particularly among those middle class segments that were eager to become part of growing economy and keen to benefit from economic growth.
Analysis and Findings
• • • • Challenges Problem faced by borrowers Problem faced by lenders Opportunities
Conclusion and Recommendations Conclusion
The consumer banking industry has many opportunities to grow, customer wants convenience mode of banking for which new products& services should be introduced. Wealth management service which is a new service in Pakistan consumer banking industry .Its awareness should be increased. Improper guidance, slow processing and bank statements are the major problems faced by the bank’s customer in getting consumer loan. The reason is that people applying for loan don’t have proper in formation about the requirements by the banks and due to high number of application lengthy procedure by banks loan processing is very slow. Despite of many changes by the banks in their policies and strict regulation by SBP still bank's customers are facing hidden charges problem.
