Meezan Bank has been selected for Overseas Pakistani Saving Scheme under the pandemic stress time
Interview with Mr. Irfan Siddiqui — President and CEO, Meezan Bank Limited
PAGE: Tell me something about Meezan Bank, please:
Irfan Siddiqui: Meezan Bank was established in 2002 and has always worked with the vision of establishing ‘Islamic banking as banking of first choice’. We believe that Islamic banking offers a distinct customer-centric value proposition and underlying these operations are the attributes of complete transparency. Our aim and wish is that the Islamic finance market in the country should grow. I believe that the Islamic banking industry in Pakistan is well poised to expand. Instead of seeing other Islamic banks or windows as competition, we work with them and support them.
Alhamdulillah, Meezan Bank has witnessed consistent growth in its branch network each year ever since its inception; beginning with four branches in 2002 to reaching a nationwide network of over 770 full-fledged commercial banking branches today, with a workforce of over 12,000 employees. In its nineteenth year of operations, the Bank is not only the largest Islamic Bank in Pakistan but is now also the 7th largest commercial bank in Pakistan. Meezan Bank has been acknowledged as the Best Bank in Pakistan for 2018 by the Pakistan Banking awards, which is the most prestigious award in the country’s banking sector. The Bank has also been recognized as the Best Islamic Bank in Pakistan by numerous local and international organizations consistently over the past several years.
PAGE: Has coronavirus (COVID-19) affected the activities related to Islamic finance in Pakistan?
Irfan Siddiqui: The ongoing pandemic has caused historical disruptions in economies across the globe and banks across the world are struggling to fight this crisis as consumers from all income strata are facing the financial impact of the pandemic and there has been a significant decrease in spending across all categories. For businesses, challenges for many SMEs may continue to mount and the banking sector’s nonperforming financing (NPL) ratio is also expected to reach higher levels. Given these circumstances, the support extended by the Regulators in order to minimize the economic impact of COVID-19 is commendable. The provision of concessional financing in order to prevent layoffs is an excellent initiative.
The State Bank of Pakistan (SBP) has also announced one-year extension in principal payments, doubling of the period for rescheduling of loans from 90 to 180 days in an additional effort to support the economy. Also, hospitals and medical centres incurring expenses to combat the coronavirus pandemic are also being provided concessional financing, which is a very thoughtful move by the State Bank.
Meezan Bank also facilitated some hospitals at zero percent financing initially in order to support their operations. The reduction in discount rate by the State Bank of Pakistan is also a welcome initiative that will allow cheaper financing and help banks to support businesses.
On the customer facilitation side, our alternate banking channels have supported our customers to adapt to the new norm. For the first quarter of FY20, we have witnessed significantly increased usage and reliance on our Alternate Distribution Channels (ADCs) for transactions such as bill payments, funds transfer and ATM cash withdrawals.
PAGE: What is the current state of the Islamic banking activities and what do you perceive after the elimination of COVID-19?
Irfan Siddiqui: Currently, all commercial banks in Pakistan are struggling to continue with uninterrupted banking services, trying to minimize the financial strain on to their customers and on the welfare system, with the hope to aid in economic recovery once stability returns.
Meezan Bank is already taking steps to ease financing requirements for its customers to reduce their financial burden. The government and the SBP have taken great strides to stabilize the economy during these trying times by incentivizing banks, enabling provision of loans to important sectors of the country while at the same time forwarding advances to keep millions of jobs intact. It is also commendable how the State Bank has encouraged the banking sector to continue with socially responsible banking services and facilitate their clients in all possible ways.
For Pakistan, a prolonged shutdown could affect the financial sector and capital markets, both of which are vital sources of liquidity for multiple sectors. Banks have therefore stepped up their roles by ensuring continuous availability of ATMs, Call Centers as well as digital banking channels. The SBP is already pumping billions in the economy to keep it from going down. All of these efforts are being made to counter reduced employment and purchasing power – impacts that may deter companies from fully utilizing their production capacity, which would ultimately affect both demand and supply in the economy.
A post-COVID-19 world could therefore be met with a rough patch where the economy may witness a drop in external demand, lower revenues, lower purchasing power and decline in remittances from migrant workers before it finally bounces back to pre-virus levels of activity. Amid this economic stress, Meezan Bank is pleased to be a part of the Government’s Overseas Pakistani Savings Scheme (OPSS) as the only dedicated Islamic bank selected for this purpose. The OPSS will offer the opportunity of investments to Overseas Pakistanis through profitable Savings. I do believe that each one of us has a role to play now more than ever and with adequate regulatory support, we shall Insha’Allah emerge stronger than ever.
PAGE: Could you tell me about the concept of working from home for the employees working in the Islamic finance sector of Pakistan?
Irfan Siddiqui: At Meezan Bank, our primary focus is the health and safety of our staff and our customers. The various pro-active measures adopted by the Bank are the activation of multiple Business Continuity Process (BCP) sites and enabling the staff through technology to work from home. Through these measures over the past month, we have managed to shift a large number of our Head Office staff to work from off-site locations or from home. We have also reopened a very large number of our branches across Pakistan in order to continue serving our customers seamlessly. We have placed significant emphasis on virtual trainings and video conferencing and our teams have collaborated through technology to continue their operations and provide uninterrupted services to both internal and external customers. We have also launched a number of awareness campaigns directed at our staff, customers and branch visitors to spread awareness about the pandemic, including protective measures such as wearing masks and implementing social distancing.
PAGE: Kindly tell us about the support from the government in these trying times?
Irfan Siddiqui: The State Bank of Pakistan has taken a series of initiatives to address the challenges associated with the economic impact of COVID-19. The steps taken by the Central Bank in stepping up its crisis-fighting measures are indeed commendable. There has been a cumulative reduction in policy rate of 425 basis points since March 17, 2020. In addition, with the launch of SBP Refinance Scheme to Support Employment and Prevent Layoff of Workers, the Government is playing an important role in enabling organizations to support their workforces in these difficult times. The scheme is being made available to existing as well as new borrowers of banks and DFIs.
As a bank, our first priority is to give preference to businesses that are labor intensive and most affected by the coronavirus crisis. The government has also launched Prime Minister’s COVID-19 Pandemic Relief Fund-2020 that is accepting donations and contributions from people living within and outside Pakistan through various channels. No service fee is being charged by Banks on donations through payment cards including Interchange Reimbursement Fee (IRF), Merchant Discount Rate (MDR), Merchant ID Fee, onboarding fee etc.
I am also thankful for the announcement of Relief Package for Households, Businesses & Refinance Schemes under which, Banks’ overall pool of funds has been increased in order to support the sector in supplying additional loans to businesses and households. Capital Conservation Buffer (CCB) has also been reduced from 2.50% to 1.50% by the SBP. This will enable banks to finance an additional amount of around Rs. 800 billion, an amount equivalent to about 10% of their current outstanding loans.
The SBP has also relaxed the Debt Burden Ratio (DBR) for consumer loans from 50% to 60% for a year. This measure will allow about 2.3 million individuals to borrow more from banks in this time of need. Banks are also deferring payment of principal on loans and advances by one year without any effect on the borrower’s credit history. This is a welcome initiative for a large number of individuals. For borrowers whose financial conditions require relief beyond extension of principal repayment for one year, SBP has relaxed the regulatory criteria for restructuring/rescheduling of loans. Banks would also not be required to suspend the unrealized mark-up against such loans.
SBP is also facilitating new investment by announcing a ‘Temporary Economic Refinance Facility (TERF)’ and its Shariah-compliant version to stimulate new investment in manufacturing. Last but not the least, there has been a significant relaxation in the credit requirements for exporters and importers with a strategic object to support exports for sustained improvement in Pakistan’s balance of payments and growth.
The pro-active support extended by the Regulators towards immediate relief to borrowers, front-line hospitals fighting the COVID-19 and in supporting the salaries of staff, is commendable. This combination of immediate relief to ensure uninterrupted availability of banking services, secondary relief to handle the burden of payments, corona-fighting relief to main stakeholders and lastly the long-term economic revival relief has helped the country’s banking sector to a considerable extent.