“The banking industry will see lasting behavioral changes”, expressed Basir Shamsie, President and CEO at JS Bank, during an exclusive Q&A session with our Editor in Chief on the impact of COVID-19 outbreak on the overall economic landscape in Pakistan, also he shared his valuable insights on the shifting dynamics of the financial and banking industries caused by the pandemic.
1. What’s your bank’s strategy to offset the impact of coronavirus pandemic on your bank and customers?
COVID-19 has shown an impact across national and international economies. Government mandated shelter in place and lock-down orders have reduced business operations and revenues. At the same time, the public is focused on saving funds in hand keeping in view market uncertainty.
In context of banking sector, traditional brick and mortar setups have been severely impacted because of limited ability to visit branches due to movement restrictions, need to avoid crowded locations and health/safety concerns.
At JS Bank, we are striving to ensure that we continue to provide a full suite of offerings and services to customers in these times. We are also taking measures to support the national economy. We have been the first movers in the market and followed through on State Bank initiatives for financial stability.
We beefed up our mobile/internet banking offerings and witnessed the volume of transactions on digital channels increase by 30-40%, while total number of customer registrations have also spiked. We have waived digital transaction charges for our customers to enable them in making convenient digital payments. On the macro level we are offering hospital financing as well as payroll support packages to businesses to keep them afloat in these times.
2. The State Bank of Pakistan announced a raft of measures to support businesses and consumers likely to be affected by a coronavirus pandemic. What can we actually expect from this relief package for banks and the borrowers?
The State Bank of Pakistan and its relief efforts are meant to provide borrowers with a number of alternatives for sustaining their businesses as well as easing the stress on the economy due to unemployment and dropping productivity. Many of the measures announced by the SBP like the slash in interest rates, Temporary Economic Financing Facility, hospital and payroll financing options have already been passed on to the consumer and many organisations are availing them at present.
Banks are giving out loans at discounted rates to ensure that customers can get relief in all relevant areas.
3. What about your bank’s progress made on loan repayment deferments. How much of loan payments owed by large, retail and small and medium customers has been delayed and restructured/rescheduled so far? How many applications for payment deferrals have yet been received?
Loan restructuring and rescheduling is an ongoing process especially in these times, the numbers of which are constantly fluctuating. Bank lending in Pakistan is typically corporate and commercial centered. SMEs, which are the hardest hit, have a small share of the lending wallet, and consumer piece including mortgage is limited as compared to corporate lending. Unlike other markets where SMEs have a large portion of the overall bank borrowing portfolio, Pakistan’s financial industry had a limited exposure level when it came to small scale lending. As far as the corporate and commercial borrowers are concerned, basic commodity players, like food products, rice, wheat, sugar and edible oil, will continue to operate as they are need based products.
4. Do you think loan repayment deferments and the SBP’s refinance scheme for payment of wages and salaries to the workers and employees of business concerns will create a liquidity constraint in your bank?
Due to the significant drop in the interest rates, core profitability of banks will take a hit. And, we are adding risk to our balance sheet to support our economy and our borrowers via enhanced lending for payroll, deferring repayments etc. We do not know how long the current situation will prevail, but banks in Pakistan due to their low Loan to Deposit Ratios have enough liquidity and capital cushions for the near term. If the current situation continues then the central bank will likely use additional tools and release CRR to finance liquidity. The lending being provided for continuation of wages is a refinance by the SBP to banks so does not affect liquidity of individual banks.
5. Do you think borrowers will be able to benefit from the loan deferment relief when a large portion of the economy is undocumented, and many individuals and SMEs take loan from informal sources?
The segment of the population which receives its credit from sources falling outside the remit of the SBP are not able to apply to the various relief measures that the regulatory body has introduced. However, in the last few years, the availability of easy micro and nano loans from microfinance institutions have enabled a lot of businesses to acquire credit options from SBP sanctioned organisations. We have been slowly and surely moving towards a documented economy and there has been an upswing in lending towards segments which typically used to engage informal lending entities such as small scale agriculturalists and livestock.
6. Analysts see a major chance of loan defaults due to reduced economic activities. What is your take on this?
As far as the corporate and commercial borrowers are concerned, basic commodity players, like food products, rice, wheat, sugar and edible oil, will continue to operate as they are need based products. As we move up the curve, we get into the demand side for exporters. While there has been impact across the board, the garment industry has faced challenges. At the same time, the home textile segment, which constitutes a large chunk of exports, is relatively better off vs other garment offerings. Other segments such as real estate will also be impacted but as mentioned earlier, Pakistani banks have limited exposure in these segments.
Other sectors like the automobile industry and other manufacturers are witnessing slow supply and demand. If the lock-downs were to persist, these organisations would struggle to keep up their debt payments along with a host of others. However, this is too early to call at present because the government is already considering plans to ease the lock-downs so that economies can begin to recover albeit cautiously.
7. Is JS Bank enable to provide secure online banking services to their customers without facing cyber-attack threat to the financial system?
JS Bank has a state-of-the-art cyber security infrastructure which is active round the clock providing robust protection for users and their personal data. Our teams are constantly monitoring threats and having contingency plans to thwart them before they have the chance to compromise our systems. We are committed towards providing enhanced security to users particularly over banking channels with the use of encryption protocols and secure servers that are manned by qualified professionals at all times. Our customers can continue to use digital banking channels knowing that their bank is alert and vigilant while focused on providing them the highest quality of service.
8. Banking industry players are the big corporates working in Pakistan, so as JS Bank do you feel the responsibility to give back to the society in these trying times when people are suffering?
It certainly is. We played our part a bit differently as we worked on increasing the grass root impact. Responding to the unprecedented challenges faced by the nation by the Corona Virus (COVID-19), JS Bank established a 110 Million rupees fund in association with key partners to help address the impact of the pandemic during the month of April.
Based on a pledge matching initiative wherein JS Bank equally matched all support pledges made by its partners, this fund is rooted in JS Bank’s philanthropic philosophy of collaborative efforts and will focus on addressing some of the immediate and long-term issues related to the pandemic.
The fund has a three tiered strategy wherein the first phase will focus on provision of rations and necessities worth 30 Million rupees to food insecure families while the second phase will see distribution of Personal Protective Equipment (PPE) and donations worth 50 Million rupees to medical and other frontline institutions including non-governmental organisations. The third phase of the program will focus on mitigating the long-term health impact of the virus through medical and technological Research and Development.
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