President & CEO, Silkbank Ltd.

CV:

Mr. Tarin has done his MBA in Management Sciences from Pepperdine University in Malibu, California. He is a career banker with 25 years extensive experience. He commenced his career in branch operations in Lincoln Savings in California in 1989.His first banking assignment in Pakistan was with Union Bank Limited from 1999 to 2006 as Head of Retail Banking where he was a part of the core team that turned around the bank into one of the most profitable banks of the country. Mr. Azmat Tarin was inducted in the Board of the Bank in April 2008. He served as an Executive Director and was elevated in October 2008 by the Board of Directors to the position of President and CEO.

Blurb: 

We are the only bank which is already in the process of upgrading our core banking system to the latest release which very few banks have yet opted for in the world.

Evolve: How did you find 2014 for the banking sector and what will be your strategy in 2015?

Azmat Tareen: The year 2014 was a challenging year for Pakistan both on the political as well as the economic front. The security situation worsened during 2014 with increasing terrorist attack. The continuing energy crisis further dampened the business environment. 

The year 2014 was challenging for us. The economic, regulatory and the security situation was demanding, yet as a team, through dedication and hard work, we overcame the challenges to close 2014, stronger than ever before by posting a year end operating profit of Rs. 499 million and a profit before tax of Rs. 131 million.

The Banks’ strategy is focused on reducing cost of funds by replacing high-cost deposits with low-cost current and saving account deposits. Another strategic initiative driven largely by the reduction in the base interest rates in Pakistan, is to focus on booking high-yielding consumer assets.  Building on the progress during the year 2015, the Bank shall continue to pursue its goals to be the top service provider in the banking industry as well as improve profitability with a more robust capital base. The Bank also plans to expand its footprint across Pakistan with new branch openings both in conventional as well as Islamic banking.

Evolve: How do you gauge emerging economic conditions in terms of opportunities and challenges for the banking sector? Will this be a tough year for the banks?

Azmat Tareen: Current economic trends are expected to bring mixed sentiments for the banking sector. On one hand, with reduction in the policy rates of the State bank of Pakistan as a consequence of lower inflation, there will be extreme challenges in keeping net interest income at current levels and on the other hand, there are opportunities for higher fee income, led by transaction banking and investment banking income. We believe growth in advances may propel after a year or so. Despite all-time low interest rates we believe the corporate loan book may take time to expand as the government is yet to deliver results on the resolution of the ongoing energy crisis in the country. This year may register profitability growth on the back of higher income from investments in long term government papers and one-time gains realized on sale of securities. However, simultaneously the one off impact of Super Tax imposition in the fiscal year 2014-15 may result in flat growth for some banks as well.

Evolve: There are many undeserved urban & rural areas. How is your bank planning to address that void? Would you like to share your 2015 expansion plan?

Azmat Tareen: The aspect of serving underserved urban and rural areas is always imbued into the plan. This also follows the regulatory requirements applicable to branch expansion which incorporates a focus on the rural and less served areas. Our current expansion plan is in the process of finalization. However, we intend to add fifty branches to our existing foot print. A proportion of the growth will also take place in our rural distribution.

Evolve: We are an agricultural economy yet if you look at farmers, there is hardly any access available for financing. Do you have any plans for agriculture sector?

Azmat Tareen: We have a specific product for the agriculture sector, where we indirectly finance the farmers through the sugar mills. This form of financing to the agricultural sector was undertaken as we have limited distribution in the rural areas and hence we require a conduit to reach the farmers. 

Evolve: Is the local banking system geared up to finance upcoming energy projects like LNG?

Azmat Tareen: Energy is a priority sector for the government and will continue to remain so in the foreseeable future. While the banking sector is fully geared to support the financing needs of the energy projects, yet the exposure of the IPP’s to the circular debt problem restricts the ability of the banking sector to overly expose itself to the energy sector, limiting growth possibilities. 

There are three parts of LNG business, the way it is envisaged in Pakistan:

1. The first one is the construction of an LNG Import Terminal, which has already been done;
2. The second one relates to the import of the LNG, like any other commodity import;
3. The third and perhaps the most important one is the distribution system and utilization of LNG.  Unfortunately, this aspect requires greater clarity to effect a smooth distribution and utilization system, which also includes supply to the national grid.  Hence, the banks in Pakistan have given a somewhat lukewarm response to financing of the LNG chain.

Evolve: How much have you been investing in technology?

Azmat Tareen: Strong Information Technology is imperative to banking sector growth. We are cognizant of the impact of information technology on delivering products and services to customers; hence we continue to upgrade our information technology systems. We are the only bank which is already in the process of upgrading our core banking system to the latest release which very few banks have yet opted for in the world. Besides, we have developed a mobile banking solution to provide instant account access to customers from anywhere and anytime, which has been successfully launched.  We have also developed a customer verification management system to enable efficient and speedy customer verification, for fast decision making, aimed at benefiting our prospective clients by reducing the time it takes to provide various consumer loans. We are also putting in place an integrated treasury front office system to provide automated services for both conventional and Islamic banking. By and large our focus on technology will continue into the future as well and we would like to be seen amongst the most innovative banks.

Evolve: In early 2000s, banks were giving loans heavily. We are again entering in similar market conditions. How do you see the banking sector responding to the situation this time around?

Azmat Tareen: Things are different from the previous loan book expansion cycle witnessed in 2000. Banks have become prudent in their lending practices. Also, the 2008 global meltdown also was a learning experience for financial institutions and the regulators and a worldwide focus on better governance practices were put in place. Banks are now giving priority to asset quality, rather than lending spreads, in order to keep their infection ratio under control. Moreover the State Bank of Pakistan Credit Bureau allows banks to access customer credit history enabling them to take more informed decisions. Although risk taking is intrinsic to banking yet the learnings from the prior experiences will ensure that banks will fare better on risk management and delinquencies will be much lower compared to the previous periods.

Evolve: Where do you see growth rate and interest rates going from here?

Azmat Tareen: Interest rates are expected to uptick in second half of 2016 at the back of the compounding effect of increase in utility prices and PKR devaluation against the greenback. The base effect diminishes from December 2015 onwards, which could increase inflation going forward. Low interest rate environment for the entire fiscal year would however propel GDP growth to government’s expected level of around 5%. 

Evolve: Which sector(s) are you eyeing in 2015, furthermore how do you opine that what should the   industry target collectively in this year?

Azmat Tareen: The recent Budget outlined favorable incentives for different sectors of the economy. Notable among these are construction, which include cement, ceramics, paints, steel, glass, PVC, pipes, etc. Also, infrastructure and energy both upstream, midstream and downstream will trigger a growth spurt in the economy. Within these sectors, banks will be looking for companies that;

1. Operate in favorable demand/supply scenarios; 
2. Display growth potential;
3. Have strong track record; and
4. Have reputable sponsors and management. 

In addition, banks will continue with their bottom up approach where companies, which do not necessarily fall into above mentioned sectors, but possess strong fundamentals and a stable outlook, will continue to attract credit. 

Our SME sector plays a vital role in the economy. We have a defined target market for the industries which keeps on changing with the economy and overall conditions prevailing in International and Local markets.

Silkbank targets several sectors under the SME Business, foremost being; Steel and Re-rolling mills, Pharmaceuticals, Paper and Allied, Sports Goods, Travel and Tourism, Light Engineering, Chemical and Allied, Retailers and Traders, Fertilizer dealers, Dairies and Live Stock .

Evolve: Can banks attain the 4.5 percent gross spread as proposed by the State Bank of Pakistan?

Azmat Tareen: In my view, it would be difficult to attain a gross spread of 4.5 percent. SBP will have to make a lot of effort to bring the spreads down from its current level of 5.72%, as banks would continue making money through capital gains on GOP securities and also by increasing their consumer loan books.

Evolve: How did the bank’s deposits evolve in the outgoing year and what is going to be your strategy going forward?

Azmat Tareen: The liability performance over the year has remained above budget, and the strategy will remain focused on solicitation of low cost small accounts with a consistent maintenance of downward trend in cost of funds, and staying live to the external environment. Addition of new branches to the network, alternate delivery channels, and developing new products through market research and data collection will act as force multipliers to the strategy.

Evolve: Any message for the readers of EVOLVE?

Azmat Tareen: As we move into 2015 and beyond, financing will become more affordable to the consumers. This will allow access to consumer durables, motor vehicles as well as housing finance enabling previously unserved segments to enhance their standards of livings. 

Higher spending will also trigger greater investments into the corporate sector leading to more employment opportunities for the younger population who will be entering the work force. Together with efforts going into the energy sector as well as large scale infrastructure projects, we should witness higher GDP growth in the economy, leading to a stronger and prosperous Pakistan.