Consumer

FINAL YEAR PROJECT
Need and Scope of Consumer

Banking in Pakistan
By: Syed Yasir Hussain

04-0224
Supervised by:
Mr. Jamil Ahmed
Final Year Project on
Need and Scope of Consumer Banking in Pakistan
Prepared by:
Syed Yasir Hussain (04-0224)
Supervised by:
Jamil Ahmed
Submission Date:
May 3, 2008
Department of Management Sciences

Bachelors of Business Administration 2004 - Batch
National University of Computer and Emerging Sciences-FAST
iii
Acknowledgment
Thanks to Allah for providing me the strength, courage, direction and skills to learn,
acquire knowledge and the ability to accept and meet challenges.
Secondly I would like to thank all those who have helped in performing this research
especially my father Syed Aqil Hussain, who is also Branch Manager at Habib
Metropolitan Bank.
I would like to appreciate all those people who give their precious time to conduct
interview and to fill questionnaires. I would like to express my sincere gratitude to
my Supervisor Mr. Jamil Ahmed and FYP-Coordinator Mr. Zaki Rashidi for their
continuous guidance and support throughout the FYP.
I hope this project will be beneficial for the student to come in FAST after us. Once
again I would like to thank all those who have been involved directly or indirectly in
this project.
iv
Table of Contents
Acknowledgment iv
List of Figures viii
List of Tables ix
List of Keywords x
Executive Summary xi
SECTION 1 INTRODUCTION
1.1 Background 01
1.2 Purpose 01
1.3 Objective 01
1.4 Scope & Limitation 02
1.5 Assumptions 02
1.6 Study Plan 02
SECTION 2 INDUSTRY OVERVIEW FROM SECONDARY DATA
2.1 Banking Industry of Pakistan 04

2.2 State Bank of Pakistan (Central Bank) 06
2.3 Foreign & Local Banks 08
2.4 Products / Services in Banking Sector 09
2.5 Consumer Banking in Pakistan 10
2.5.1 Auto Loans 12
2.5.2 Home Loans 12
2.5.3 Personal Loans 12
2.5.4 Credit-Debit Cards 12
2.5.5 Deposit Accounts 13
2.5.6 Wealth Management 13
2.5.7 E-banking 14
2.6 SBP Prudential Regulations for Consumer Financing 14

2.6.1 Prudential Regulations for Auto Loans 15
2.6.2 Prudential Regulations for Home Loans 16
2.6.3 Prudential Regulations for Personal Loans 17
2.6.4 Prudential Regulations for Credit Cards 18
2.7 Credit Information Bureau 19

2.7.1 Introduction 19
2.7.2 History of CIB 20
2.7.3 Role of CIB 20
2.7.4 e-CIB 21
v
2.8 Contribution of Consumer Banking in Economic Development 21
2.8.1 Overview 21
2.8.2 Consumer Financing & Economic Growth 22
2.8.3 Role of SBP 22
2.8.4 Implication for economy 23
2.8.5 Conclusion 23
2.9 Brief overview of some local & foreign banks 24

2.9.1 NBP 24
2.9.2 MCB 24
2.9.3 UBL 25
2.9.4 SBL 25
2.9.5 HMB 26
2.9.6 FBL 26
2.9.7 SCBP 27
2.9.8 Citibank 27
2.9.10 ABN Amro Bank 28
2.10 Comparison of Consumer Financing Products some local & foreign banks 29
2.10.1 Auto Loans by Local Banks 29
2.10.2 Auto Loans by Foreign Banks 29
2.10.3 Home Loans by Local Banks 30
2.10.4 Home Loans by Foreign Banks 30
2.10.5 Personal Loans by Local Banks 31
2.10.6 Personal Loans by Foreign Banks 31
2.10.7 Credit Cards Loans by Local Banks 32
2.10.8 Credit Cards by Foreign Banks 32
SECTION 3 RESEARCH METHODOLOGY
3.1 Strategy for Data Collection 33

3.2 Primary Data Collection 33
3.2.1 Surveys 33
3.2.2 Interviews 34
3.3 Secondary Data Collection 34
3.4 Population & Sample 34
3.4.1 Population 34
3.4.2 Sample 34
3.5 Statistical tools & software used for data analysis 35
vi
SECTION 4 ANALYSIS AND FINDINGS
4.1 Opportunities 36
4.2 Challenges 39
4.3 Problems faced by borrowers 51
4.4 Problems faced by lenders 42
4.5 Customer preference for Consumer Banking 45
4.6 Future prospects of Consumer Banking in Pakistan 46
4.7 Expert Views 47
SECTION 5 RECOMMENDATIONS AND CONCLUSIONS
5.1 Conclusion 49
5.2 Recommendations 52
References 54
Bibliography 55
Appendix 58
vii
List of Figures
2.1 Amount of Consumer Financing 11

2.2 Consumer Financing Share be Sector 11
2.3 NPL Ratio for Consumer Financing 11
4.1 Customers banks are providing WMS or not 37
4.2 New e-banking service which customers want to be introduced 37
4.3 Satisfaction by tenure of consumer loans 39
4.4 Problems in getting consumer loans 40
4.5 Preference by banks for issuing consumer loans 42
4.6 Factor used by banks to judge customer profile 43
4.7 Major reasons for defaults on consumer loans 44
4.8 Customer preference for banking 45
4.9 Schedule of charges rated by bank’s customer 45
4.10 Customer preference for consumer banking 46
viii
List of Tables
2.1 Industry Overview 05

2.2 List of banks in Pakistan 08
2.3 Auto loans by local banks 29
2.4 Auto loans by foreign banks 29
2.5 Home loans by local banks 30
2.6 Home loans by foreign banks 30
2.7 Personal loans by local banks 31
2.8 Personal loans by foreign banks 31
2.9 Credit Cards by local banks 32
2.10 Credit Cards by foreign banks 32
4.1 Customers banks are providing WMS or not 36
4.2 New e-banking service which customers want to be introduced 37
4.3 Satisfaction by tenure of consumer loans 38
4.4 Problems in getting consumer loans Descriptive Statistics 40
4.5 Problems in getting consumer loans percentage wise responses 40
4.6 Preference by banks for issuing consumer loans Descriptive Statistics 42
4.7 Preference by banks for issuing consumer loans percentage wise response 42
4.8 Factor used by banks to judge customer profile 43
4.9 Major reasons for defaults on consumer loans descriptive statistic 44
4.10 Major reasons for defaults on consumer loans percentage wise response 45
4.11 Schedule of charges rated by bank’s customer 45
4.12 Customers preference for consumer banking 46
ix
List of Keywords
SBP State Bank of Pakistan
CF Consumer Financing
CB Consumer Banking
WMS Wealth Management Service
IMF International Monetary Fund
PR Prudential Regulations
DFI Development Financial Institutions
SME Small Medium Enterprise
CIB Credit Information Bureau
x
Executive Summary
This research is a part of my Bachelor of Business Administration degree. The

purpose of this research is to explore the potential of Consumer Banking in Pakistan
and to find out the challenges & opportunities faced by Consumer Banking Industry.
In this research comparison of consumer financing products of local and foreign
banks have also been done and the problems faced by borrowers and lenders have
also been identified. There are three foreign and five local banks have been selected
in this research, from which interviews and surveys are conducted.
Consumer finance was backed by the SBP to give boost to economic growth through
demand-pull pressure. Various instruments of consumer finance have attractions for
consumers for reasons that are dictated by personal desires, income constraints,
paying capacity, social needs and access to getting loans. Rising interest rates,
spiraling service charges and deterioration in quality of service are bringing down the
demand for personal loans, credit cards and auto financing. Consumer banking is
facing new challenges as a result of interest hikes.
The real beneficiaries of consumer finance are the people who did not have capacity
to purchase expensive household items in a single go but could afford them because
of consumer finance, the commercial banks that have been earning large interest and
huge returns on their investment in consumer finance and the economy that got
impetus for growth.
Local banks are preferred by people for general banking services because of their low
charges and wide branch network but for consumer banking people prefer foreign
banks because of their good customer service and wide range of facilities. Despite of
so many changes in consumer financing regulations bank’s customers are still facing
hidden charges problem, difficulty in getting consumer loans and not highly satisfied
by tenure of consumer loans.
xi
Due to lack of awareness many problems are faced by the banks customers and the
industry growth rate is declining. Banks should take steps to promote consumer
banking in such a way that the awareness if consumer banking services could be
increased and the industry could boost at a high rate. New services need to be
introduced and services and banks charges & markup rates should be reduced.
In case economy is to sustain growth through consumer finance as one of the

important factors of growth, then income inequalities should be bridged and income
level be increased to develop paying capacity of large number of consumers.
xii
Section 1.0 Introduction
1.1 Background
In Pakistan all banks & DFI’s works under the supervision of the State Bank of
Pakistan, the four major sectors in which SBP has divided banks operations are
Corporate, SME, Agriculture and Consumer. SBP provide regulations according to
which all banks should work & continuously keep a track that banks are complying
through the regulations or not.
1.2 Purpose
In recent years, Consumer Banking has made tremendous progress and has played a
positive role in boosting the economy and in meeting the needs and requirements of
the consumers. Whether large or small bank, multinational or local, each one of them
is geared towards making its mark in an already competitive environment that is the
outcome of consumer banking. The growing economy and further improvements in
the level of household income have created many opportunities for consumer
banking. In this research the past, present & future of consumer banking will be
analyzed.
1.3 Objective
This report will give an overview of the problems in current system of consumer
banking from the point of view of both borrowers & lenders and explore the
upcoming opportunities in the area of consumer banking.
Main Objectives:
• Comparison of services by local & foreign banks
1
• Problems in current system of consumer banking
• Solution for problems faced by lenders & borrowers
• Exploration of opportunities in future
• Role of consumer banking in Economic Development
1.4 Scope & Limitation
Issues like, problems in consumer banking due to which some banks temporarily stop
consumer financing, why some banks haven’t implemented full fledge consumer
banking and what are the opportunities in consumer banking & its effect on economic
development will be analyzed.
1.5 Assumptions
• Consumer Banking Industry has a lot of potential to grow

• Both borrowers and lenders are facing a lot of problems
• High Interest, wrong policies, lack of education, etc are the factors for decline
of consumer banking industry
• Consumer Banking is still a highly profitable banking sector although its
facing a lot of problems
1.6 Study Plan
Section – II of this report is totally based on secondary data consist of an overall view
of Pakistan Banking Industry, consumer banking in Pakistan, comparison of
consumer financing products of local & foreign banks and brief introduction of few
banks which are included in this research.
2
Section – III of this report consist to research methodology, in which it is explained in
detail the method for conducting research, sample, population and tools used for data
analysis.
Section – IV of this report consist of Analysis & Findings from our primary and
secondary data in included the major party of this section are consumer banking
preference, opportunities, challenges, problems of borrowers & lenders in consumer
banking industry has been covered.
Section-V of this report consists of recommendation and conclusion bases on our

finding & analysis of this whole research.
3
2.0 Industry Overview from Secondary Data
2.1 Banking Industry of Pakistan
In Pakistan all banks & DFI’s works under the supervision of the State Bank of
Pakistan, the four major sectors in which SBP has divided banks operations are
Corporate, SME, Agriculture and Consumer. SBP provide regulations according to
which all banks should work & continuously keep a track that banks are complying
through the regulations or not.
Pakistan is the sixth most populous country of the world fourth in Asia and second in
SAARC countries, with a population of more than 160 Million of which 100 Million
is less than 25 years old and with a 30 Million strong middle class enjoying many
benefits from consumer financing or donor’s agencies. (Alam, 2007)
Banking sector in Pakistan has undergone a significant transformation in the recent

years and has also acted as a catalyst in the revival of the economy. Many
privatization, acquisition and mergers took place during last 7 years which started
from privatization of Muslim Commercial Bank and from time to time Allied Bank
Limited, United Bank Limited, Habib Bank Limited were also privatized by the
government. These years also witnessed acquisition of Union Bank by Standard
Chartered Bank, Prime Bank by ABN Amro, etc also took place and recently
Metropolitan Bank has been merged with Habib Bank AG Zurich. All these
privatization, acquisition and mergers resulted in high foreign investment in Pakistan
and improved performance of the banking industry while its has also helped banks to
gain more market share in short time and to easily meet the high paid-up-capital
requirement of SBP i.e. Rs. 6 Billion till 2009 which was Rs.0.5 to Rs. 1 Billion
in 2000.
4
The commercial banking sector in Pakistan can be segregated into three categories -
(1) five large commercial banks with total branches in excess of 700 each. Four of
these banks have been denationalized in recent years, (2) branches of foreign banks in
Pakistan and (3) local private banks.
Table 2.1
2000-2001 2003-2004 2006-2007
No. of Schedules Banks 43 39 41
No. of Schedules Banks 6724 6373 7746
Branches
Scheduled Banks 1276 2002 3373
Deposits
Rupees in Billion
Advances
Rupees in Billion
Assets
Rupees in Billion
Online Branches 450 2475 4179
ATM’s 259 786 2294
Credit Card Holders 29200 809000 5815000
(SBP, 2006)
The market has been dominated by five large commercial banks. Foreign banks have
been in operation for a long time as well, but their business is concentrated with large
multinational clients. Local private banks were allowed to be formed in 1991 and
currently there are about 30 such banks, which tend to serve local small to medium-
sized enterprises.
Pakistan has a highly developed financial sector consisting of 4 public 12 private 21

commercial banks, DFI, leasing companies, mutual funds, Islamic venture capital
fund companies. The commercial banks have assets of over one trillion rupees of
which about 80% is held by domestic banks. (Alam, 2007)
2.2 State Bank of Pakistan (Central Bank)
5
The State Bank of Pakistan (SBP) is the central bank of Pakistan. While its
constitution, as originally laid down in the State Bank of Pakistan Order 1948,
remained basically unchanged until January 1, 1974, when the bank was nationalised,
the scope of its functions was considerably enlarged. The State Bank of Pakistan Act
1956, with subsequent amendments, forms the basis of its operations today. The
headquarters are located in the financial capital of Pakistan, Karachi with its second
headquarters in the capital, Islamabad.
The Stat Bank of Pakistan looks into a lot of different ranges of banking to deal with
the changes in economic climate and different purchasing and buying powers. Here
are some of the banking areas that the state bank looks into;
• State Bank’s Shariah Board Approves Essentials and Model Agreements for
Islamic Modes of Financing
• Procedure for Submitting Claims with SBP In Respect of Unclaimed Deposits
Surrendered By Banks/DFI’s.
• Banking Sector Supervision in Pakistan
• Micro Finance
• Small Medium Enterprises (SMEs)
• Minimum Capital Requirements for Banks
• Remittance Facilities in Pakistan
• Opening of Foreign Currency Accounts with Banks in Pakistan under new
scheme.
• Handbook of Corporate Governance
• Guidelines on Risk Management
• Guidelines on Commercial Paper
• Guidelines on Securitization
• SBP Scheme for Agricultural Financing
6
The principal officer of the SBP is the Governor. During December 2005, the
President of Pakistan appointed Dr. Shamshad Aktar as the new Governor of the State
Bank for a three year term, to replace Dr. Ishrat Hussain, who retired on December 1,
2005.
2.2.1 Departments of SBP
• Agricultural Credit
• Audit
• Banking Inspection
• Banking Policy
• Banking Supervision
• Corporate Services
• Economic Policy
• Exchange and Debt Management
• Exchange Policy
• Human Resource
• Information System
• Islamic Banking
• Legal Services
• Payment System
• Research
• Statistics
• Real Time Gross Settlement System (RTGS System)
• Small and Medium Enterprises
7
2.3 Foreign & Local Banks
1998 2005 2006 2007

PUBLIC SECTOR COMMERCIAL PUBLIC SECTOR COMMERCIAL PUBLIC SECTOR COMMERCIAL PUBLIC SECTOR COMMERCIAL
BANKS BANKS BANKS BANKS
Habib Bank Ltd. National Bank of Pakistan National Bank of Pakistan National Bank of Pakistan
National Bank of Pakistan First Women Bank Ltd. First Women Bank Ltd. First Women Bank Ltd.
United Bank Ltd. The Bank of Khyber The Bank of Khyber The Bank of Khyber
First Women Bank Ltd. The Bank of Punjab The Bank of Punjab The Bank of Punjab
The Bank of Khyber
The Bank of Punjab
LOCAL PRIVATE BANKS LOCAL PRIVATE BANKS LOCAL PRIVATE BANKS LOCAL PRIVATE BANKS
Askari Commercial Bank Ltd. Askari Commercial Bank Askari Commercial Bank Ltd. Askari Commercial Bank Ltd.
Bank Alfalah Ltd. Ltd. Bank Al-Falah Ltd. Bank Alfalah Ltd.
Bank AL Habib Ltd. Bank Alfalah Ltd. Bank Al Habib Ltd. Bank AL Habib Ltd.
Bolan Bank Ltd. Bank AL Habib Ltd. My Bank Ltd. Mybank Limited
Faysal Bank Ltd. Bolan Bank Ltd. Faysal Bank Ltd. Faysal Bank Ltd.
Metropolitan Bank Ltd. Faysal Bank Ltd. Metropolitan Bank Ltd. Habib Metropolitan Bank Ltd.
Platinum Commercial Bank Metropolitan Bank Ltd. KASB Bank Ltd. KASB Bank Ltd.
Ltd. KASB Bank Ltd. Prime Commercial Bank Ltd. Prime Commercial Bank Ltd.
Prime Commercial Bank Ltd. Prime Commercial Bank Saudi Pak Commercial Bank Saudi Pak Commercial Bank Ltd
Prudential Commercial Bank Ltd. Ltd PICIC Commercial Bank Ltd.
Ltd Saudi Pak Commercial PICIC Commercial Bank Ltd. Soneri Bank Ltd.
Gulf Commercial Bank Ltd. Bank Ltd Soneri Bank Ltd. Standard Chartered Bank
Soneri Bank Ltd. PICIC Commercial Bank Union Bank Ltd5. (Pakistan) Ltd.
Union Bank Ltd. Ltd. MCB Bank Ltd. MCB Bank Ltd.
Muslim Commercial Bank Ltd. Soneri Bank Ltd. Allied Bank Limited. Allied Bank Limited
Allied Bank of Pakistan Union Bank Ltd. United Bank Ltd. United Bank Ltd.
Trust Bank Ltd. Muslim Commercial Bank Meezan Bank Limited Meezan Bank Limited
Indus Bank Ltd. Ltd. NIB Bank Ltd. NIB Bank Limited
Allied Bank of Pakistan Crescent Commercial Bank Crescent Commercial Bank Ltd.
United Bank Ltd. Ltd. Habib Bank Limited
Meezan Bank Limited Habib Bank Ltd Atlas Bank Limited.
NDLC-IFIC Bank Ltd. Dawood Bank Ltd. Arif Habib Rupali Bank Ltd.
Crescent Commercial Bank Dubai Islamic Bank Pakistan
Ltd. Ltd.
Habib Bank Ltd. BankIslami Pakistan Ltd.
Dawood Bank Limited JS Bank Limited
FOREIGN BANKS FOREIGN BANKS FOREIGN BANKS FOREIGN BANKS
ABN AMRO Bank N.V. ABN AMRO Bank N.V. ABN AMRO Bank N.V. ABN AMRO Bank N.V.
Albaraka Islamic Bank B.S.C. Albaraka Islamic Bank Albaraka Islamic Bank B.S.C. Albaraka Islamic Bank B.S.C.
American Express Bank Ltd. B.S.C. American Express Bank Ltd 7. Bank of Tokyo - Mitsubishi UFJ,
ANZ Grindlays Bank American Express Bank The Bank of Tokyo – Limited
Bank of America Ltd. Mitsubishi.8 Citibank N.A.
Bank of Ceylon The Bank of Tokyo – Citibank N.A. Deutsche Bank AG
The Bank of Tokyo - Mitsubishi Mitsubishi Deutsche Bank AG The Hongkong & Shanghai
Citibank, N.A. Citibank, N.A. Habib Bank AG Zurich 9 Banking Corporation Limited
Credit Agricole Indosuez Deutsche Bank AG The Hongkong & Shanghai Oman International Bank
Deutsche Bank AG Habib Bank A. G. Zurich Banking Corporation Ltd. S.A.O.G.
Doha Bank The Hongkong & Shanghai Oman International Bank
Emirates Bank International Banking Corporation Ltd. S.A.O.G.
Habib Bank AG Zurich Oman International Bank Rupali Bank Ltd.10
The Hongkong & Shanghai S.A.O.G. Standard Chartered Bank
Banking Corporation Ltd. Rupali Bank Ltd.
IFIC Bank Ltd. Standard Chartered Bank
Mashreq Bank PJSC
Oman International Bank
S.A.O.G.
Rupali Bank Ltd.
Societe Generale
Standard Chartered Bank
SPECIALIZED BANKS SPECIALIZED BANKS SPECIALIZED BANKS SPECIALIZED BANKS
Agriculture Development Bank Zarai Taraqiati Bank Ltd. Zarai Taraqiati Bank Ltd. Zarai Taraqiati Bank Ltd.
of Pakistan Industrial Development Industrial Development Bank Industrial Development Bank of
Industrial Development Bank of Bank of Pakistan of Pakistan Pakistan
Pakistan Punjab Provincial Cooperative Punjab Provincial Cooperative Punjab Provincial Co-operative
Federal Bank for Co-operatives Bank Ltd. Bank Ltd. Bank Ltd.
Punjab Provincial Co-operative SME Bank Ltd. SME Bank Limited
Bank Ltd.
TOTAL BANKS: 46 TOTAL BANKS: 38 TOTAL BANKS: 38 TOTAL BANKS: 39
Table 2.2
8
2.4 Products / Services in Banking Sector
Some major services in banking industry of Pakistan;
SMS Alerts Term Accounts

Current Accounts Savings Accounts
Foreign Currency Accounts Cash Management Service
E-Statements Statements by Fax
Merchant Services Business Loans
Remittance Service Trade Finance
Investment Banking Lockers Facility
SWIFT Service International Banking
Current Accounts Debit Cards
ATM Traveler Cheque
Pay Order Telegraphic Transfer
Demand Draft Home Loans
Auto Loans
Personal Loans
Credit Cards
Business Loans
Running Finance
Balance Transfer Facility
Online Banking
Internet Banking
Mobile Banking
Telephone Banking
9
2.5 Consumer Banking in Pakistan
Consumer banking which is one of the fastest growing sectors of Pakistan Banking
Industry is also now major interest point for the banks. Initially the consumer banking
sector was only focused by the foreign banks but its efficiency & profitability
attracted others to come towards this business but still the major share of consumer
banking in Pakistan is in the hands of foreign banks.
In a generic sense, institutional arrangements that provide consumers with financing

support to enhance their consumption and as a result thereof, improve their standards
of living should fall within the broad definition of consumer finance. For the past 50
years commercial banks in Pakistan had completely ignored consumer financing as an
activity.
Consumer banking is a huge industry with great profits massive potential for
improving economic conditions. But the banking sector has to care more for its
subscribers rather than solely about itself. It needs to offer itself. It needs to offer
better services at better terms and needs to inform the consumer completely and fully
about the services.
According to an analysis, credit cards loans have increased from Rs33.538 billion
during first of last calendar year to Rs42.822 billion during first half of current
calendar year. Likewise, personal loans have increased from Rs120.517 billion in
H1CY06 to Rs142.373 billion in H1 CY07. Growth in auto loans has not been less
impressive. It registered an increase of approximately Rs8.0 billion from RS97.777
billion to Rs105.444 billion during the corresponding period of growth of credit cards
and personal loans. Housing loans have also registered an increase of approximately
Rs11.0 billion in H1 CY 07 from Rs43.205 billion in H1 CY06. (Sharif, 2007)
10
Exposure per borrower
Rupees in 000 2004 2005 2006
Credit Cards 23 26 32
Auto Loans 423 430 411
Consumer Durable 37 29 22
Mortgage Loans 1572 1982 2025
Other Personal Loans 82 89 100
(SBP, 2006)
Figure 2.1
Consumer Financing Share by Sector(SBP, 2006) Amount of Consumer Financing (SBP, 2006)
Figure 2.2
Figure 2.3
NPL Ratio of Consumer Financing (SBP, 2006)

2.5.1 Auto Loans
11
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. Salaried Persons/Self Employed Professionals / Business Persons who meet
the terms and conditions to qualify for the finance are eligible for the loan. Some
banks are also offering both variable rate & fixed rate options for auto loans. The
average market rate for auto loans is 14-16%.
2.5.2 Home Loans
The loans taken for Buying, Building or Renovating of house/land are classified as
home loans. For home loans both variable rate & fixed rate options are also available.
The maximum duration offered by banks for home loans is generally twenty years
that’s why banks conveniently give loans to permanent employees of any firm to
ensure strong repayment ability.
2.5.3 Personal Loans
Personal Loans 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. Personal loans include loans for the purpose of education, marriage,
purchase of consumer durables, furnishing, traveling, etc. Generally the limit for
personal loans is maximum Rs.500, 000/-
2.5.4 Credit-Debit Cards
Credit Cards mean cards which allow a customer to make payments on credit.
Supplementary credit cards are considered part of the principal credit card. Initially
only foreign banks are offering credit cards in Pakistan but now many local banks is
12
also offering credit card facility. Credit Card is covered by three networks VISA,
Master Card & American Express.
Debit cards are issued to account holders of any bank in Pakistan almost all the banks
are offering debit card facility the amount used by the debit card holder is directly
debited from the account of the card holder. Debit cards are accepted at all ORIX
Network in Pakistan and it can also be used as ATM cards which are covered by 1-
Link & MNET network in Pakistan.
2.5.5 Deposit Accounts
All the commercial banks are offering different kinds of deposit accounts these
account ranges from customer to customer to fill the need of every type of customer.
Few of the accounts provide high interest while some pay low interest & some don’t
pay any interest. Some major categories of deposit accounts are;
• Current Accounts
• Saving Accounts
• Foreign Currency Accounts
• Business Accounts
• Term Deposits Accounts
2.5.6 Wealth Management
Wealth management is a new kind of service introduced in consumer banking sector

now days. It covers all aspects of securing future of bank’s customers it includes
insurance, tax advisory, financial consultancy, investments plans, etc. Yet wealth
management service are mainly covered by few foreign banks only this is a new
service are even bank’s customers don’t have any idea about Wealth Management
13
Service. Almost all the banks are offering insurance services to some of their
customers but the concept of wealth management is not behind it.
2.5.7 E-banking
To facilitate its customers all banks local & foreign are offering high technological e-
banking services. These services let the banks customers to perform many banking
activities easily without any restriction of time & place. Some of the major e-banking
services provided by the banks are;
• Phone banking
• Internet banking
• Plastic Cards
• Online banking
• Mobile banking
• ATM
2.6 SBP Prudential Regulations for Consumer Financing
The improvement in the banking sector has been not only in terms of asset growth
and profitability but also in terms of diversification of products and risk profile.
Almost every commercial bank in Pakistan now offer consumer financing, so the
effective regulation for the consumer banking by the State Bank of Pakistan was
must. In 2003 State Bank of Pakistan issued the First Edition of Prudential
Regulations for Consumer Financing.
The prudential regulations in force were mainly aimed at corporate and business
financing. The SBP in consultation with the Pakistan Banking Association and other
stakeholders has developed a new set of regulations which cater to the specific
14
separate needs of corporate, consumer and SME financing. The prudential regulations
will enable the banks to expand their scope of lending and customer outreach.
Consumer Financing means any financing allowed to individuals for meeting their
personal, family or household needs .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
2.6.1 Auto Loans
• The vehicles to be utilized for commercial purposes shall not be covered

under the Prudential Regulations for Consumer Financing.
• The maximum tenure of the auto loan finance shall not exceed seven years.
• While allowing auto loans, the banks / DFIs shall ensure that the minimum
down payment does not fall below 10% of the value of vehicle.
• In addition to any other security arrangement on the discretion of the banks/

DFIs, the vehicles financed by the banks / DFIs shall be properly secured by way
of hypothecation.
• The banks / DFIs shall ensure that the vehicle remains properly insured at all
times during the tenure of the loan.
15
• The clause of repossession in case of default should be clearly stated in the
loan agreement mentioning specific default period after which the repossession
can be initiated. The repossession expenses charged to the borrower shall not be
more than actual incurred by the bank / DFI.
• A detailed repayment schedule should be provided to the borrower at the

outset. Where alterations become imminent because of late payments or
prepayments and the installment amount or period changes significantly, the
revised schedule should be provided to the borrower at the earliest convenience of
the bank / DFI but not later than 15 days of the change.
• The banks / DFIs desirous of financing the purchase of used cars shall prepare
uniform guidelines for determining the value of the used vehicles. However, in no
case the bank / DFI shall finance the cars older than five years.
• The banks / DFIs should ensure that a good number of authorized auto dealers
are placed at their panel to eliminate the chances of collusion or other unethical
practices.
2.6.2 Home Loans
• Banks / DFIs 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.
• Banks / DFIs shall ensure that the total monthly amortization payments of
consumer loans, inclusive of housing loan, should not exceed 50% of the net
disposable income of the prospective borrower.
16
• The lending bank / DFI will ensure that the loan amount is utilized strictly for
the construction purpose and loan is disbursed in tranches as per construction
schedule. Loans against the security of existing land / plot, or for the purchase of
new piece of land / plot, for commercial and industrial purposes may be allowed.
• The housing finance facility shall be provided at a maximum debt-equity ratio

of 85:15.
• Banks / DFIs are free to extend mortgage loans for housing, for a period not
exceeding twenty years.
• The house financed by the bank / DFI shall be mortgaged in bank’s / DFI’s
favour by way of equitable or registered mortgage.
• Banks / DFIs shall either engage professional expertise or arrange sufficient

training for their concerned officials to evaluate the property, assess the
genuineness and integrity of the title documents, etc.
• The bank’s / DFI’s management should put in place a mechanism to monitor

conditions in the real estate market (or other product market) at least on quarterly
basis to ensure that its policies are aligned to current market conditions.
• Banks / DFIs are encouraged to develop floating rate products for extending
housing finance, thereby managing interest rate risk to avoid its adverse effects.
2.6.3 Personal Loans
• The clean limit per person for personal loans will generally not exceed Rs
500,000/-.
17
• Banks / DFIs may assign a clean limit beyond Rs 500,000 but not in excess of
Rs 2 million to their prime customers who have extraordinary strong repayment
capacity, moderate debt burden and a clean track record.
• In cases, where the loan has been extended to purchase some durable goods /
items, including personal computers and accessories thereof, the same will be
hypothecated with the bank / DFI besides other securities, which the bank / DFI
may require on its own.
• The maximum tenure of the loan shall not exceed 5 years. However, this
period may be extended to 7 years for loans / advances given for educational
purposes, provided that disbursement of such loans shall directly be made by the
bank / DFI to the educational institution and the borrower shall not be allowed to
utilize / withdraw cash directly from the bank / DFI under this head for any other
purpose.
• In case of Running Finance / Revolving Finance, it shall be ensured that at

least 15% of the maximum utilization of the loan during the year is cleaned up by
the borrower for a minimum period of one week.
2.6.4 Credit Cards
• The banks / DFIs should take reasonable steps to satisfy themselves that
cardholders have received the cards, whether personally or by mail.
• Banks / DFIs shall provide to the credit card holders, the statement of account
at monthly intervals
18
• Banks / DFIs shall be liable for all transactions not authorized by the credit
card holders after they have been properly served with a notice that the card has
been lost / stolen. However, the bank’s / DFI’s liability shall be limited to those
amounts wrongly charged to the credit card holder’s account.
• In case the cardholders make partial payment, the banks / DFIs should take
into account the partial payment before charging service fee / mark-up amount on
the outstanding / billed amount so that the possibility of charging excess amount
of mark-up could be avoided.
• Due date for payment must be specifically mentioned on the accounts

statement.
• Maximum unsecured limit under credit card to a borrower (supplementary

cards shall be considered part of the principal borrower) shall generally not
exceed Rs 500,000/.
• Banks / DFIs may, however, assign a clean limit beyond Rs 500,000 but not in
excess of Rs 2 million to their prime customers who have extraordinary strong
repayment capacity, moderate debt burden and a clean track record.
• Banks / DFIs 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
2.7 Credit Information Bureau
2.7.1 Introduction:
19
The bureau is a repository of credit information of borrowers. The member lending
institutions provide credit data (personal and loan information) of their borrowers to
the bureau which consolidates, updates, and stores the same and provides this
information to its members Financial Institution in the form of credit worthiness
reports (CWR).
2.7.2 History of CIB:
The Credit Information Bureau (CIB) is a public sector credit bureau of Pakistan. It
was established in 1992 by the State Bank of Pakistan (SBP) under Section 25(A) of
Banking Companies Ordinance-1962. The CIB is a part of Banking Surveillance
Department of the State Bank of Pakistan.
2.7.3 Role of CIB:
The CIB plays an important role in promoting financial discipline, better credit risk
management and making prudent lending decisions. It is globally recognized that a
well developed financial sector must have effective credit risk detection and
management system to allocate credit efficiently. The CIB helps financial institutions
in managing credit risk and assessing true credit worthiness of existing as well as
prospective borrowers.
The Credit Information Bureau also aid financial institutions to make well informed
credit decisions in timely manners minimizing the credit risk. All fund and non-fund
base credit facilities irrespective of any outstanding amount are being reported to the
CIB. Reporting to the CIB is mandatory for all member financial institutions (FIs).
Two types of reports can be generated from eCIB system:
20
1. Consumer Credit Information Report
2. Corporate Credit Information Reports

2.7.4 Electronic Credit Information Bureau (eCIB):
The very purpose of establishing a CIB at SBP was to promote sound credit culture,
prudence and professionalism among financial institution. The scope and
administration of CIB database was further enhanced in April, 2006 when a new look
VPN based e-CIB system with enhanced features started its operations. The key
features of new eCIB system included the followings;
• Separate Consumer/Corporate reports and data input formats
• Provisions for consumer credit and default history
• Provisions for online amendments and Interim updates
• Record of credit inquiries made by the financial institutions
• Web based Help Desk for online queries and complaints
• Online technical support to the financial institutions
2.8 Contribution Consumer Banking in Economic Development
2.8.1 Overview:
In Pakistan, consumer finance despite rapid growth during initial period of 2-3 years
has started declining. During past few years the domestic consumer finance emerged
as one of the key factors to boost economic growth despite its comparatively low
share of 14 per cent in the total private sector credit compared to its share in other
countries like India and Indonesia where it stands at 24 per cent and 30 per cent
respectively.
21
Regional and global markets and economic players have become highly competitive
and banking sector is more concerned to safeguard its capital and enrich itself with
higher returns on loans than government’s concern about boosting economic growth.
2.8.2 Consumer Financing & Economic Growth:
Lending through credit cards, personal loans, auto loans, loans for durables and
housing finance emerged main streams of consumer finance. They shaped 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 constraints for borrowing particularly among those middle class
segments that were eager to become part of growing economy and keen to benefit
from economic growth. Without consumer finance being in the driving seat of the
banking sector, a large number of people would not have benefited.
Lending through credit cards, personal loans, auto loans, loans for durables and
housing finance emerged main streams of consumer finance. They shaped 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 constraints for borrowing particularly among those middle class
segments that were eager to become part of growing economy and keen to benefit
from economic growth.
2.8.3 Role of SBP:
Consumer finance was backed by the SBP to give boost to economic growth through
demand-pull pressure. The banking sector went out of its way to make it attractive for
the consumers through easy lending and providing loans for those consumer items
that consumers envied the most. They were mostly electrical appliances, autos and
22
housing. Consequently, share of consumer finance in over all loans increased from
9.4 per cent in 2004to 13.5 per cent, Rs72.4 billion in 2006.
2.8.4 Implication for economy:
Consumption is the key to economic growth for one simple reason that it sets pace for
production of commodities and manufacturing of goods of different sorts. The
dilemma of managers of national economy over the years was to execute a well
defined strategy of economic growth along with taking measures to bring structural
changes in economy through prudent administrative, fiscal and monetary policies.
Developed economies register growth because of domestic consumption and exports.
These twin factors guarantee their economic survival in this highly competitive
world. China and India are the two best examples in this context. What options are
available to Pakistan for economic growth? Right now, exports are going slow and
consumption is fuelled by financially strong segments of society who totally depend
upon remittances sent by their relatives working abroad, profits earned through
speculative investment and as beneficiaries of expansionary fiscal policy pursued by
the government.
2.8.5 Conclusion:
The real beneficiaries of consumer finance are the people who did not have capacity
to purchase expensive household items in a single go but could afford them because
of consumer finance, the commercial banks that have been earning large interest and
huge returns on their investment in consumer finance and the economy that got
impetus for growth. The point of concern is that consumer finance is helpful only for
those who are to some extent affluent to opt for it.
23
In case economy is to sustain growth through consumer finance as one of the
important factors of growth, then income inequalities should be bridged and income
level be increased to develop paying capacity of large number of consumers. Inflation
should be contained and a strong broad based middle class be built. Unless these
imperatives were met, it is doubtful if consumer finance based on weak middle class
supported by remittances can really play the same role that it is played by strong and
affluent middle class both in developed economies and to some extent in emerging
economies.
2.9 Brief overview of some local & foreign banks
2.9.1 National Bank of Pakistan
National Bank of Pakistan maintains its position as Pakistan's premier bank

determined to set higher standards of achievements. It is the major business partner
for the Government of Pakistan with special emphasis on fostering Pakistan's
economic growth through aggressive and balanced lending policies, technologically
oriented products and services offered through its large network of branches locally,
internationally and representative offices.
Profit after Tax : 19 Billion According to annual report 2007
Total Assets : 762 Billion

No. of Branches : 1243
2.9.2 Muslim Commercial Bank
MCB is one of the leading banks of Pakistan with a deposit base of about Rs. 280
billion. Incorporated in 1947, MCB soon earned the reputation of a solid and
conservative financial institution managed by expatriate executives. In 1974, MCB
24
was nationalized along with all other private sector banks. This led to deterioration in
the quality of the Bank’s loan portfolio and service quality. Eventually, MCB was
privatized in 1991. During the last fifteen years, the Bank has concentrated on
growth through improving service quality, investment in technology and people,
utilizing its extensive branch network, developing a large and stable deposit base and
managing its non-performing loans via improved risk management processes.

2.9.3 United Bank Limited
UBL has assets of over Rs. 300 billion and a solid track record of forty six years - in
addition to the convenience of over 1000 branches serving you throughout the
country and also at several overseas locations. It was established in 1959. The Bank's
long term rating is AA +, which denotes good credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of economic
conditions.

2.9.4 Soneri Bank Limited
Opened doors for operations in Lahore on April 16,1992 followed by Karachi branch
on May 09, 1992. The bank now operates with 89 Branches spread all over Pakistan
including the Northern Areas of the country where no other private bank has ventured
25
so far. Expansion of branches is based on a policy of maintaining a balance between
the urban and rural areas with a view to offering services even in the remote areas of
Pakistan. Pleasant and sophisticated atmosphere has been provided in the branches
which are all fully air-conditioned and computerized.
Profit after Tax : 1000 Million According to annual report 2007
Total Assets : 77.73 Billion

2.9.5 Habib Metropolitan Bank Limited
Habib Metropolitan Bank was incorporated in Pakistan as a Public Listed Company

in 1992 under the name, Metropolitan Bank Limited. The Bank commenced, duly
licensed, full scheduled commercial-banking operations in October 1992.
On October 26, 2006 Habib Bank A G Zurich’s Pakistan Operations merged into
Metropolitan Bank Limited and the merged entity was named Habib Metropolitan
Bank Limited (HMB). Demonstrating a strong commitment to Pakistan economy,
HBZ is the principal shareholder of HMB. HMB operates in all major cities of the
country. The Bank ranks within Top 10 in Pakistan with a strong vision to be the
most respected Financial Institution.
Profit after Tax : 2797 Million According to annual report 2007

2.9.6 Faysal Bank Limited
Faysal Bank started operations in Pakistan in 1987, first as a branch set-up of Faysal
Islamic Bank of Bahrain and then in 1995 as a locally incorporated Pakistani bank
26
under the present name of Faysal Bank Limited. On January 1, 2002, Al Faysal
Investment Bank Limited, another group entity in Pakistan, merged into Faysal Bank
Limited which resulted in a larger, stronger and much more versatile institution. In
fact it has the highest share capital amongst private banks in Pakistan and is amongst
the largest in terms of equity. Faysal Bank Limited is a full service banking institution
offering consumer, corporate and investment banking facilities to its customers. The
Bank’s widespread and growing network of branches in the four provinces of the
country and Azad Kashmir, together with its corporate offices in major cities,
provides efficient services in an effective manner
Profit after Tax : 2,272 Million According to annual report 2007

2.9.7 Standard Chartered Bank:
Standard Chartered is the largest international Bank in Pakistan. The Bank has been
operating in Pakistan for over 140 years when it first established its operations in
1863 in Karachi. After the acquisition of Union Bank in September 2006, the new
entity Standard Chartered Bank (Pakistan) Limited was incorporated in Pakistan on
30 December 2006 as a subsidiary of Standard Chartered PLC.

2.9.8 Citibank N.A.:
27
Citibank Pakistan has demonstrated its ability to identify market needs and develop
products which are unique in concept and fulfill customer requirements. The aptitude
to develop lifelong relationships while maintaining quality measures and
technological efficiencies has assisted Citibank in becoming a true market leader.
Corporate and investment banking clients include corporations at every stage of
development. Catering to the changing needs of corporations and leveraging on long
term relationships, we execute transactions of almost any size, of every level of
complexity, and back them with a wide distribution network.
• First foreign bank to launch MasterCard in Pakistan.
• In 1990 Consumer Bank was established.
• In 1996 Citibank, N.A. launches its Intranet System in April.
• In 1996 it was first bank to launch a Photo Credit Card.
• Citibank, N.A. is the first Financial Institution to launch Personal Loans in
Pakistan in 1999.

2.9.9 ABN Amro Bank:
Committed to Pakistan since 1948, ABN AMRO Pakistan has a strong commercial
banking presence as well as an established retail franchise which offers a complete
product suite including credit cards, consumer loans and deposit accounts. The bank
is a leader in product innovation in the local market and is represented in key
financial and government policy forums in the country. Its acquisition of Prime Bank
in April this year further strengthens its position in Pakistan. With assets of PKR 124
billion, about 5,000 employees and over 80 branches in 24 cities, the combined entity
is the second largest foreign bank and one of Pakistan’s top 10 banks in a rapidly
growing market.
28

2.10 Comparison of Consumer Financing Products by some Local &
Foreign Banks
2.10.1 Auto Loans by Local Banks
Table 2.3
Bank Name Maximum Maximum Minimum Maximum

Tenure Limit Down Interest Rate
payment
Soneri Bank 5 years Rs. 2 Million 15 % 14 %

Limited
National Bank of - - - -
Pakistan
Muslim 7 years No limit 10 % 15.75%

Commercial Bank
United Bank 7 years 5 Million 10 % 15 %

Limited
Habib 7 years 3 Million 15 % 16.5 %

Metropolitan Bank
Faysal Bank 5 years 7 Million 20 % 15.99 %

Limited
Average 6 years 4.25 Million 14% 15.448%
2.10.2 Auto Loans by Foreign Banks

Table 2.4
Bank Name Maximum Maximum Minimum Maximum

Tenure Limit Down Interest
payment Rate
Citibank N.A. 7 years 7.5 Million 10 % 16 %
ABN Amro Bank 7 years 10 Million 10 % 15 %
29
Standard 7 years 6 Million 10 % 13.90 %
Chartered Bank of
Pakistan
Average 7 years 7.8 Million 10 % 14.96%
2.10.3 Home Loans by Local Banks

Table 2.5
Bank Name Maximum Maximum Debt:Equity Maximum

Tenure Limit Ratio Interest Rate
Soneri Bank 10 years 05 Million 70:30 15 %

Limited
National Bank of 20 years 35 Million 85:15 14 % approx.

Pakistan KIBOR + 4 %
Muslim 25 years 20 Million 70:30 14 %

Commercial Bank
United Bank 20 years 50 Million 75:25 14 %

Limited
Habib - - - -
Metropolitan
Bank
Faysal Bank 20 years 20 Million 80:20 15 %

Limited
Average 19 years 26 Million 76:24 14.4%
2.10.4 Home Loans by Foreign Banks

Table 2.6
Bank Name Maximum Maximum Debt:Equity Maximum

Tenure Limit Ratio Interest Rate
Citibank N.A. 20 years 20 Million 80:20 18 %
ABN Amro Bank 20 years 30 Million 80:20 15.31 %
Standard 20 years 20 Million 70:30 15 %
30
Chartered Bank of
Pakistan
Average 20 years 23 Million 76:24 16 %
2.10.5 Personal Loans by Local Banks
Table 2.7
Bank Name Maximum Maximum Limit Maximum

Tenure Interest Rate
Soneri Bank 5 years 500,000 17 %

Limited
National Bank of 5 years 490,000 14 %

Pakistan
Muslim 5 years 500,000 27 %

Commercial Bank
United Bank 5 years 500,000 25 %

Limited
Habib 5 years 500,000 22 %

Metropolitan Bank
Faysal Bank 5 years 500,000 22 %

Limited
Average 5 years 498000 21.66%
2.10.6 Personal Loans by Foreign Banks
Table 2.8
Bank Name Maximum Maximum Limit Maximum

Tenure Interest Rate
Citibank N.A. 5 years 500,000 21 %
ABN Amro Bank 5 years 500,000 28 %
Standard Chartered 5 years 500,000 26 %
31
Bank of Pakistan
Average 5 years 500,000 25 %
2.10.7 Credit Cards by Local Banks
Table 2.9
Bank Name Maximum Limit Maximum

Interest Rate
Soneri Bank - -
Limited
National Bank of -
Pakistan -
Muslim 500,000 35 % pa
Commercial Bank
United Bank 500,000 37 % pa

Limited
Habib -
Metropolitan Bank -
Faysal Bank - -
Limited
Average 500,000 36% pa
2.10.8 Credit Cards by Foreign Banks
Table 2.10
Bank Name Maximum Limit Maximum

Interest Rate
Citibank N.A. 500,000 39 % pa
ABN Amro Bank 500,000 39 % pa
Standard Chartered 500,000 36 % pa
32
Bank of Pakistan
Average 500,000 38%
Section 3.0 Research Methodology
3.1 Strategy for Data Collection
Two survey forms have been designed one for the bank’s staff and one for bank’s
customers to identify the problems and solutions faced by borrowers & lenders in the
area of Consumer Banking. Five interviews have been conducted at different banks of
Karachi.
The selected foreign banks are the key market players of consumer banking in
Pakistan while the selected local banks are three big banks, two middle size banks
and one small size bank.
3.2 Primary Data collection
3.2.1 Surveys
Survey Form – I (for bank’s staff) was filled by only those bank’s employees which
are working in the area of sales, credit, operations, branch management or any other
area which is relevant to consumer banking. All these bank’s staffs were directly or
indirectly dealing in consumer banking so they have a clear idea on consumer
banking sector.
33
Survey Form – II (for bank’s customer) was filled by the customers of nine selected
local & foreign banks in Pakistan. There were only two conditions to be eligible to fill
out the form that the bank’s that person must have a bank account in any local or
foreign bank and have some idea of consumer banking.
3.2.2 Interviews
Five interviews have been conducted by the branch/relationship managers of two

foreign and three local banks
3.3 Secondary Data collection
Secondary data has been collected from different magazines, websites, news papers
and journals. For secondary data collection the main focus was on local materials
while some information on consumer banking in different countries has been
collected to see the trends and new opportunities.
3.4 Population & Sample
3.4.1 Population
This survey is conducted in different banks of Karachi from people of different ages
including both males and females. Altogether one hundred & fifty samples are
selected from customer survey out of two hundred forms and fifty samples were
selected out of seventy in banks survey.
3.4.2 Sample
34
For Surveys
Six local and three foreign banks have been selected, all the survey forms have been
filled by staff of those banks and customers of those banks
Foreign Banks
 Citibank N.A.
 ABN Amro Bank
 Standard Chartered Bank of Pakistan
Local Banks
 Muslim Commercial Bank (MCB)
 Soneri Bank Limited (SBL)
 United Bank Limited (UBL)
 Faysal Bank Limited (FBL)
 Habib Metropolitan Bank Limited (HMB)
 National Bank of Pakistan (NBP)
For Interviews
Interviews have been conducted by the relationship managers of two foreign banks
and branch managers of three local banks which are;
 Citibank N.A.
 Standard Chartered Bank
 Habib Metropolitan Bank Limited
 Soneri Bank Limited
 National Bank Limited
3.5 Statistical tools and Software to be used for data analysis
35
The statistical tools that are used for analyzing the result of these surveys are mean,
descriptive statistics and standard deviation and for data representation tables and
graphs have been used. Several other factors are taken to analyze the survey. The
major softwares that are being used for these surveys analysis are MS Word, MS
Excel and SPSS.
Section 4.0 Analysis and Findings
4.1 Opportunities
The most preferred category for issuing consumer loans is salaried individuals one of
the most important reasons behind this is that they are more reliable and they have
regular source of income or incase of any problem them employers can also be
approached for any query. The two other categories which are businessman & self-
employed people are considered after organizational employees, these two categories
also have can also give a great business to consumer banking industry but suitable
conditions & polices must be prepared to disburse more loans to them.
One of new concept introduced in the area of consumer banking is Wealth

Management Service. The service is classified as an advanced type of financial
planning that provides high net worth individuals and families with private banking,
estate planning, asset management, legal resources, and investment management,
with the goal of sustaining and growing long-term wealth.
During our survey more than 48% respondents said that they don’t have any idea of
wealth management service. Although 40% of the respondents said that their bank is
providing WMS because insurance is also a part of WMS and many banks are
36
providing insurance service to their saving accounts holders but there is no concept of
WMS behind this.
Table 4.1
N Percentage
Yes 60 40%
No 13 8.6%
No Idea 73 48.6%
No Response 04 2.6%
50%
40%
Yes
30% No
20% No Idea
No Response
10%
0%
Figure 4.1
To increase the consumer banking business through WMS banks should create more
awareness about WMS and its benefits should be highlighted so that consumer
banking industry could grow promptly.
The consumer banking industry still has a lot of potential to introduce new products
& services during our survey we asked the banks customers that which new service
would they like to be introduced most of the respondents marked that they want
‘Money at door step’ service to be introduced.
Figure 4.2
37
Internet
60.00% Banking
50.00% Money at
door step
40.00%
Online Inter
30.00%
Bank Transfer
20.00%
Other
10.00%
0.00% No Response
N Percentage
Internet Banking 11 7.3%
Money at door step 83 55.3%
Online Inter Bank Transfer 52 34.6%
Other 00 0.0%
No Response 04 2.6%
Table 4.2
After which the most preferred new service to be introduced is ‘Online Interbank
Transfer Facility’. The aim of consumer banking is to provide high convenience to
their customers. Services like Money at door step & Online Interbank Transfer
Facility should be introduced soon because they will provide high comfort to banks
customers.
The economic survey 2005-06 claims that the national economy is undergoing
structural shifts marked by rapid changes in consumer spending pattern. The real
private consumption expenditure had more than doubled from 8.2 to 16.8%
suggesting the emergence of a small middle class with buying powers. (Butt, 2005)
4.2 Challenges
Banks rely more on existing customers for issuing any type of consumer loans, giving
loan to a new customer is more risk for a bank because the bank don’t have their track
records of incomes and expenditure while with the help of CIB any bank can check
any person credit records but those maintaining account with the bank or involved in
any type of dealing are focused more for issuing consumer loans.
38
Although during last five years the tenure of different consumer loans have been
increased but the bank’s customers are not highly satisfied by the tenure according to
our survey 48.6% of respondents are not satisfied by the tenure of consumer loans the
survey result can be seen in the table 4.3 & figure 4.3;
Satisfaction by tenure of Consumer Loans Table 4.3

N Percentage
Yes 46 30.6%
Yes to some extent 73 48.6%
No 30 20%
No Response 01 0.6%
No Response
No
Yes to som e
extent
Yes
0.00% 20.00% 40.00% 60.00%
Satisfaction by tenure of Consumer Loans Figure 4.3
After analyzing the survey results conducted at different banks in Karachi it has been
seen that most of the bankers i.e. 92% said that they frequently update their customer
records but still when any customer defaults sometimes its get difficult for the banks
to trace that person it may be due to the false information provided by the customers
or by leniency of banks staff its becomes difficult to catch the defaulter.
Issuing consumer loans to the right person sometimes becomes difficult because in
the case of self-employed the problems are complicated further because many
potential consumers do not keep credible records of the streams of earning from their
vocations or business to permit financing banks a reliable assessment of their future
re-payment capacity.
39
4.3 Problems faced by borrowers
The major problems faced by customers in getting a consumer loan are improper
guidance, slow processing and bank statement. In our survey 56% of respondents said
that they are facing problems in getting consumer loans.
Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
II 150 0 1 .12 .326
IG 150 0 1 .29 .454
SP 150 0 1 .27 .447
BS 150 0 1 .21 .411
OTH 150 0 1 .03 .162
Valid N (listwise) 150

Problems in getting consumer loans Table 4.4
60
40
20
Irrelevant Inform ation Im proper Guidance

Slow Processing Bank Statement
Other
Problems in getting consumer loans Figure 4.4

N=150
Irrelevant Information 18
Improper Guidance 43
Slow Processing 41
Bank Statement 32
40
Other 04
Problems in getting consumer loans Table 4.5
Whether a person is applying for auto loan, personal loan, home loan or a credit card
it must have a bank account and a good bank statement this makes easy for a
customer to get a consumer loan and also helps banks to asses its customers better but
most of the time people who apply for a consumer loan even don’t have bank account
or they are not actively using that account which makes difficult for them to get a
loan.
The most actively used consumer financing product is Credit Card and one of the
major problems faced by bank’s customer on credit cards is its high interest rate, its
very easy for anyone to get a credit card now days because it don’t require any
collateral, the only major thing that is required by the bank to issue a credit card is a
is a bank account with a good balance. Although its easy to get a credit card but due
to its high interest rate it becomes difficult for borrowers to pay back the amount
spend through credit card and delays in their payment increases their debt burden day
by day due to high penalties on late payments and high interest. In many cases when
the card holders delay the payment for a long period it even increases the amount i.e.
interest & miscellaneous charges more than the principal amount.
Very few borrowers know that the rate of interest being charged on consumer finance
by the financial institutions is too high as compared to prime interest.
Bank service charges have increased by more than 500% in certain cases and have
gone by 100-150% in most cases in last seven years. No wonder bank’s non-interest
income also went up by 29% or Rs.43 Billion in 2006. (Ghausi, 2007)
Despite of many changes in bank policies and strict regulations by SBP still bank’s
customers are facing hidden charges problem. In our survey more than 66% of
41
respondents said that they are facing hidden charges problem. Banks don’t clearly
mention their miscellaneous charges at the time of issuing loans or opening account
due to which this problem took place.
Eventually, unsustainable burden of debt-servicing forced business to crash and

households ended up with negative equities. Maintaining the critical balance between
savings, investments and borrowers debt-servicing ability is only possible if input
prices remain stable affording business to sustain their profitability and interest rates
too remain stable affording business to sustain their profitability and interest rates too
remain stable to ensure that in the medium term, debt servicing burden remains
affordable for both consumers and manufacturers.
4.4 Problems faced by lenders
According to our survey at different banks in Karachi most of the respondents i.e.
84% said middle class is the target market for issuing consumer loans the reason
behind this is that the middle class have a better capacity of payback the loans as
compare to lower class whose source of income is mostly very low and not regular
which increases that chance of default and the upper class don’t have as such needs of
getting a consumer loans.
The most preferred consumer financing products by banks are personal loans and
credit cards due to high interest rate and easy terms to issue the highest no of loans
issued are in the category of personal loans and credit cards.
Preferred category for issuing consumer loans Table 4.6
42
PL 50 0 1 .74 .443
CC 50 0 1 .52 .505
AL 50 0 1 .32 .471
HL 50 0 1 .30 .463
Preferred category for issuing consumer loans Figure 4.5
Table 4.7
N=50 Personal
Home Loans 15 Loans
Auto Loans 16 Credit Cards
Credit Cards 26
Personal Loans 37
Auto Loans
Although it’s easy for banks to issue a credit
card and personal loans sometimes they became a major source ofHome Loans
problem for banks
because they don’t have any collateral
0 behind credit
20 cards &40personal loans in case of
defaults the chance to get back the loan amount are less.
According to an analysis 1.5 million credit cards issued and the number of borrowers
reveals that an average a borrower against the credit card has more than one credit
card. During 2006 the quality of consumer portfolio witnessed deterioration because
non-performing loans of this sector increased to Rs. 7 billion in 2007 from about Rs.
3 million in 2005. At an average a person carries two to five credit cards and also
prefers to rollover the credit by making minimum payment. The result is persistent
increase in the liability and ultimate default. (Kazmi, 2007)
The biggest category in term of loan amount is of auto and home loans but banks are
focusing more on its customer’s current repayment ability and less on long term
ability. Customer profile measured by banks according to our survey can be seen in
the table 4.8 & figure 4.6.
Method of measuring customer profile Table 4.8
43
N Percentage
Repayment Ability 26 52%
Liquidity 14 28 %
Solvency 02 04%
Willingness to pay 07 14%
No Response 01 2%
Repaym ent
60% Ability
50% Liquidity
40%
Solvency
30%
20%
Willingness to
10% pay
0% No Response
Method of measuring customer profile Figure 4.6
Due to which in case of defaults on auto and home loans 100% recovery becomes
difficult. Factors like repayment ability, Liquidity, willingness to pay are also
important but if banks focus more on the customer’s long-term ability it can be
assured that most of the loan amount could be recovered.
Auto loans have become very trouble-some for the private banks. The rate of defaults
has increased at phenomenal rates. The cars are auctioned at lower prices which do
not recover the entire amount invested by bank.
Most of the respondents in our survey of bank’s staff said that the major reasons for
defaults on consumer loans is improper assessment and consumer willingness, due to
improper assessments by bank’s staff the default occurs it may be true that the
customers don’t provide the correct information which resulted in improper
assessment.
Major reason for default on consumer loans Table 4.9
44
SBP 50 0 1 .04 .198
IP 50 0 1 .30 .463
MS 50 0 1 .16 .370
CW 50 0 1 .58 .499
IA 50 0 1 .68 .471
Improper
Assessment
Consumer
Willingness
Market
Scenario
Internal Policies
0 20 40 SBP
Regulations
Major reason for default on consumer loans Figure 4.7

N
SBP Regulations 02
Internal Policies 15
Market Scenario 08
Consumer Willingness 29
Improper Assessment 34
Major reason for default on consumer loans Table 4.10
If a customer’s income is good, he/she is capable of paying loan but if the customer is
not willing to pay the loans the default can not be stopped.
4.5 Customer’s preference for Consumer Banking
According to sample of our survey most of the customers who have accounts in local
banks rate local banks schedule of charges at moderate level. There is no doubt that in
Pakistan service charges of local banks are less than 50% as compare to foreign banks
that’s why for general banking services people prefer local banks more.
Foreign Bank
Local Bank
0.00% 50.00% 100.00% 45

Figure 4.8
When in a survey we asked people that in which
bank do they operate their account. Most of the
respondents said local bank.
50.00%
40.00% Very High
Table 4.11
High
30.00%
Average
N Percentage 20.00%
Low
Very High 23 15.3%
10.00% No Response
High 52 34.6%
Average 66 44% 0.00%
Low 08 5.3%
No Response 01 0.6%
Figure 4.9
When the same respondents asked to rate their
bank schedule of charges the results were……
But the most preferred type of banks for consumer banking is foreign banks some of
the major reason behind this is that foreign banks provide better customer service as
compare to local banks and they have a large variety of consumer banking products.
Although now days there is no major difference between interest rate on consumer
financing products offered by local and foreign banks but still the major share of
consumer financing is still captured by foreign banks in Pakistan.
When asked by the bank’s customers that which bank they prefer for consumer
banking the result showed that 44% of respondents don’t bother that the bank in local
or foreign but 37% of the respondents prefer foreign banks for consumer banking
figure 4.10 table 4.12 of the customer survey reflects the customers preference;
Table 4.12
N Percentage
Local Bank 25 15.5%
Foreign Bank 56 37.33%
46
Any 66 44%
No Response 03 02%
No Response
Any
Foreign Bank
Local Bank
0.00% 20.00% 40.00% 60.00%
Figure 4.10
4.6 Future prospects of Consumer Banking in Pakistan
Banks are focusing more on consumer finance and their strategy is fully
complemented by the companies marketing consumer durable. Now an individual can
acquire from a mobile phone to an expensive automobile on monthly installments if
he/she can convince the lender about regular income and repayment ability.
It is a two-way traffic and both the lender and borrower have realized their rights and
obligations. Financial institutions are in the business of lending and cannot afford
delinquent loans. Similarly people desirous of improving their lifestyle wish to
continue accumulating new assets. Therefore the best practice to follow is ‘you keep
me happy I will keep you happy’. (Kazmi, 2007)
Consumer financing has started slow down now. The growth was 29% or 72.4 Billion
in the first half of 2006 to mare to the total consumer portfolio equal to Rs.325 or
13.5% of the overall loans of the banking sector. The growth has shrunk to 9% in first
half of 2007. The reason for this is not the precautionary measures taken by bank but
higher rates due to which consumer are shying away from consumer financing. The
diversion of the Government borrowing from central bank to the Government is also
47
creating a crowding out impact thus leaving a little room to the banks to remain
aggressive in the area of consumer financing. (Sharif, 2007)
Maintaining the critical balance between savings, investment and borrowers debt-
servicing ability is possible if input prices remain stable affording business to sustain
their profitability and interest rates too remain stable to ensure that in the medium
term, debt servicing burden remains affordable for both consumers and
manufacturers. (Shahid, 2003)
4.7 Experts Views
According to a banker ”Our society suffers from an obsession, people displays their
affluence by spending cash. One of the motives behind spending cash is to avoid
documentation. Therefore it may not be wrong to say that only the salaried class in
interested in acquiring consumer durables on deferred payment. It also suits the
financial institutions because acquiring profile of a salary person posses no problem –
the details can always be obtained from the employer. The employees are more than
willing to pass on the burden of extending loans” (Fahad, 2008)
With pricing consumer loans unrealistically high banks have been marking a serious
mistake as they cannot charge high enough loan rare that could compensate for the
loss arising out of an irrecoverable loan. More importantly if consumer finance has to
pick-up as a truly helpful mechanism for spurring, domestic demand, it must be
ensured that is remains that it remains within the consumers’ capacity to repay their
loans on time and they feel confident about taking loans again and again.
In Pakistan, Consumer Banking Industry has a lot of potential to grow, but due to lack
of knowledge of borrowers and lenders problems are being faced by both. So, if we
want to improve the scope of consumer banking we must ensure that we have
48
educated and trained staff from bottom to the top level because this will not only
solve the problem of lenders but borrowers too. (Tirmizi, 2008)
According to a banker my advice to every individual is that assume only that much
liability you can afford to settle without causing problem for you or lender. Don’t
hurry and accumulate assets slowly and gradually. If you face any problem discuss it
with the lender to facilitate not to create problem. (Khan, 2008)
Consumer Banking Industry is highly competitive in Pakistan to improve market

share every bank has to provide better customer service, friendly policies and low
markup on loans. Few years back it was very easy for any person to get consumer
loans but now the scenario has changed financing is not very easy but this doesn’t
mean that financing has been stopped but for genuine customers there is no problem
to get as much credit as they want. (Hussain, 2008)
Section 5.0 Recommendations and conclusions
5.1 Conclusion
The consumer banking industry has many opportunities to grow, customer wants
convenience mode of banking for which new products & services should be
introduced on the other hand it is giving huge profits to bank while the level to risk is
less in consumer financing as compare to others. Wealth Management Service which
is a new service in Pakistan Consumer Banking industry its awareness should be
increased as in our survey it reveals that most of the respondent even don’t have any
idea of consumer financing. Bank’s customers want new services to be introduced in
which Interbank Transfer Facility & Money at door step are the most demanding
services.
49
In recent years the regulation for tenure and amount of consumer financing has been
changed many times but still the bank’s customers are not totally satisfied by the
tenure of consumer financing.
Improper guidance, slow processing and bank statement are the major problems faced
by bank’s customers in getting consumer loans. The reason for these problems is that
people applying for consumer loans don’t have proper information about the
requirements by the banks and due to high number of applications & lengthy
procedure by banks the loan processing is slow.
Very few borrowers know that the rate of interest being charges on consumer finance
by the financial institutions is too high as compared to prime interest. Incase of credit
cards the respondents in our survey marked High Markup Rate as the major problem
they are facing in Credit Cards.
Despite of many changes in bank policies and strict regulations by SBP still bank’s
customers are facing hidden charges problem. Due to unclear policies and term &
condition of banks, customers are not able to know about different charges of banks
and the problem of hidden charges occurs.
Although CIB provide complete and accurate information about the bank’s customer
credit records but still loans default occur in consumer financing the problem is not
with only due false customer records but also due to wrong policies and improper
assessment by bank which cause defaults on consumer loans.
The target market for issuing consumer loans for banks in the middle class because
they have the strong ability to pay off their loans, banks should make adequate
polices to provide loans to lower class on easy terms and low markup rate. Upper
50
class is generally not focused for consumer financing because they have enough
resources & purchasing power to buy any asset.
Due to high markup personal loans and credit cards are among the most preferred
category of consumer financing by the banks. While in terms of loans amount the
biggest category of consumer loans are auto & mortgage loans and they are preferred
by banks because they have collateral which provide security in case of any default.
According to bank’s staff the major reason for defaults on consumer loans is
improper assessment and consumer willingness to pay the loan.
Auto loans have become very trouble-some for the private banks. The rate of defaults
has increased at phenomenal rates. The cars are auctioned at lower prices which do
not recover the entire amount invested by bank. House and car financing are safe
modes of financing from the banker’s point of view as the every rising real-estate and
car prices coupled with safety margin in the shape of down payment allow the
bankers to enjoy a sound night sleep.
Most of the bank’s customers prefer local banks for general banking activities this is
mainly due to large branch network, wide range of services and low service charges
provided by the local banks. But for consumer banking, customers prefer foreign
banks in Pakistan this is due to high range of consumer banking services provided by
them. Foreign banks are the introducer of CB in Pakistan still retains the major share
of consumer financing in Pakistan.
During the last five years consumer banking had witnessed a high growth in Pakistan
but its growth rate is declining now which is due to the high markup rate charged by
banks and high increase in NPL with low recovery rate. Maintaining the critical
balance between savings, investment and borrowers debt-servicing ability is possible
51
if input prices remain stable affording business to sustain their profitability and
interest rate should remain stable.
There is no denying to the fact that consumer credit within prudent and sustainable
limits is desirable for economic growth, smoothing consumption and improving credit
risk diversification. At the same time unsustainable consumer growth in weak
macroeconomic environment, ineffective prudential and regulatory framework, weak
risk management system and legal infrastructure can create systemic vulnerabilities.
The consumer finance is money lending affairs to a needy perform for improvement
of his well beings and ultimately his living standard in the society. It is financing
facilities that generally and wholesomely support consumption and as a result
improves the overall living standards of house holds.
Credit card is a risky mode of finance as no collateral is available to cover risk.

Perhaps this is the reason that this segment of bank finance has been allowed to
operate o the terms of the bankers without any worthwhile monitoring by SBP. The
growth in our economy has led to increasing consumption trends, resulting in the
widening demand and supply gap. However as the people of the country become
more educated they have realized the benefits and conveniences of using plastic
money as a mode of payment. At the moment less than 1% population of the country
is using plastic money in Pakistan; therefore one can put complete blame of inflation
and price hike on it. Inflation in basic food items which is 11% is not directly linked
to plastic money or consumer financing. Developed countries facing rampant
consumerism find plastic money most efficient and acceptable mode of payment.
The total NPL of commercial banks in Pakistan have touched level of Rs.154 Billion
which is covered by 66% provisions in 2007. The local private banks have loan loss
coverage of 63% as on June 30, 2007. And for public banks and foreign banks this
ratio stood at 74% & 86% respectively. Foreign banks in Pakistan have loan loss
52
coverage of 86% and they have provided more than the required provisions against
NPL. (Sharif, 2007)
Besides average borrowing of an individual is small but a lot of time and effort have
to be spent on documentation, etc. Therefore there is valid reason for charging high
interest rates from individuals borrowers.
5.2 Recommendations
• As the number of complaints of misuse cards increased PIN-based credit cards

should be issued that would provided additional security.
• Financing to negative area residents should be made available and term &
policies should be designed accordingly to reduce the chances of defaults.
• Markup charged on consumer financing should be reduced to a substantial

level so the spread between bank loans and deposit could be reduced and
customer could easily pay off the loans
• Better returns should be provided on deposit accounts
• To facilitate the customers new products and services should be introduced

continuously
• SBP should continuously update its regulations according to need of people

and economic situations of the country
• Increase consumer awareness, give clear instructions and guidance
53
• Make customer friendly policies but it should also cover the risk factor
• Markup charge on loans & interest given on deposits should be regularly

monitored and guided by SBP
54
References
Alam, Dr.S.M (2007), Emerging Middle Class Enjoying Consumer Financing

Facility. Pakistan & Gulf Economist , XXVI (44), pp. 24-25, Islamabad.
Butt, K. (2005), Consumer Financing a risky ball game, Pakistan & Gulf Economist ,
XXIV (44), pp. 13-16, Lahore.
Ghausi, S (2007), “The Debt-Trapped Consumers”, Dawn News Paper, viewed 18

February 2008, http://www.dawn.com/2007/04/16/ebr1.htm
Kazmi, S. H. (2007). The Growing Market of Consumer Finance. Pakistan & Gulf
Economist , XXVI (44), pp. 12-13, Karachi.
Naeem, U (2007), “Consumer Banking”, Net Express Online, viewed 19 February

2008, http://netxpress.com.pk/2007/03/07/consumer-banking/
Shahid, A.B. (2003), “Consumer Finance: What are its chance of Success”, Pak &
Gulf Economist, viewed 27 February 2008,
http://www.pakistaneconomist.com/database2/cover/c2003-14.asp\
Sharif, M (2007), “Trends in Consumer Finance”, Jang News Paper, viewed 26

February 2008, http://www.jang.com.pk/thenews/dec2007-weekly/busrev- 03-12-
2007/p6.htm
55
Bibliography
Kazmi, S. H. (2007). The Growing Market of Consumer Finance. Pakistan & Gulf
Economist , XXVI (44), pp. 12-13, Karachi.
Alam, Dr.S.M (2007), Emerging Middle Class Enjoying Consumer Financing
Facility. Pakistan & Gulf Economist , XXVI (44), pp. 24-25, Islamabad.
Butt, K. (2005), Consumer Financing a risky ball game, Pakistan & Gulf Economist ,
XXIV (44), pp. 13-16, Lahore.
Iftikhar, M. (2004), Consumer Banking in Pakistan, Investment & Marketing
Magazine , XXXX (3), pp. 21-30, Karachi.
F.A.Tareen, S. (1998), Role of Consumer Banking, Islamic Banking & Finance , IX
(3),pp. 49-55, Karachi.
H.Kazmi, S.H (2006), Consumer Banking Need Fresh Approach, Pakistan & Gulf
Economist , XXV (38), p. 22, Karachi.
Kazmi, S.H (2004), Consumer Financing, Pakistan & Gulf Economist , XXIII (30),pp.
14-16, Karachi.
Umair, S. (2002), Consumer Banking in Pakistan, National Bank of Pakistan
Economic Bulletin , XXIX (1), pp. 11-12, Karachi.
Zamir, H. (2006), Consumer Banking unfazed by Rising Interest Rates, Pakistan &
Gulf Economist , XXV (38), pp. 11-12, Karachi.
Rogers, D. H. (1974), Consumer Banking in New York, Trustees of Columbia
University, Columbia.
Shekar, K. S. (2006), Banking Theory & Practise, Ninteenth Edition, Vikas
Publishing House Pvt. Limited.
Hempel, G.H. & Simonson, D.G. (1999), Bank Management, Fifth Edition, pp. 475-
505, John Wileg & Sonc Inc.
Hudgins, P. S. (2005), Bank Management & Financial Services,Seventh Edition, pp.
521-642, MCGraw Hill International Edition.
Siddiqui, D. A. (2003), Practice & Law of Banking in Pakistan,Sixth Edition, Royal
Book Company.
56
State Bank of Pakistan (2006), “Prudential Regulations for Consumer Financing”,
Banking Policy and Regulation Department, viewed 15 Febaruary 2008,
http://www.sbp.org.pk/publications/prudential/index.htm.
State Bank of Pakistan (2006), “Banking System Review 2006”, Banking Surveillance
Department, viewed 15 Febaruary 2008,
www.sbp.org.pk/publications/bsr/index.htm
Hasan, M (2004), “Banking Industry Prospects & Constraints”, Dawn News Paper,
viewed 20 February 2008,
http://www.dawn.com/2004/11/01/ebr9.htm
Ghausi, S (2007), “The Debt-Trapped Consumers”, Dawn News Paper, viewed 18
February 2008,
http://www.dawn.com/2007/04/16/ebr1.htm
Naseem, U (2007), “Consumer Banking”, Net Express Online, viewed 19 February
2008, http://netxpress.com.pk/2007/03/07/consumer-banking/
KPMG Taseer Hadi & Co. (2006), “Pakistan Banking Survey 2006”, viewed 19
February 2008,
http://www.kpmg.com.pk/industries/ind_bankingsurvery.htm
State Bank of Pakistan (2007), “Quarterly Performance Review of Banking System
June 2007”, Banking Surveillance Department, viewed 15 Febaruary 2008,
www.sbp.org.pk/publications/q_reviews/q_review_july_07.pdf
Shahid, A.B. (2003), “Consumer Finance: What are its chance of Success”, Pak &
Gulf Economist, viewed 27 February 2008,
http://www.pakistaneconomist.com/database2/cover/c2003-14.asp\
Mehmood, A (2006), “Banks seeks changes in Housing Finance Rules”, The News,
viewed 5 February 2008,
http://www.thenews.com.pk/daily_detail.asp?id=4463500
Ahmed, S (2004), “The Bank have it all way”, Dawn News Paper, viewed 26 January
2008, www.dawn.com/2004/11/14/opg.htm
57
Bashar, A (2002), “Banks Allowed Consumer Financing”, Pakistan & Gulf
Economist, viewed 18 February 2008,
http://www.pakistaneconomist.com/issue2002/issue34/f&m3.htm
Sharif, M (2007), “Trends in Consumer Finance”, Jang News Paper, viewed 26
February 2008, http://www.jang.com.pk/thenews/dec2007-weekly/busrev- 03-12-
2007/p6.htm
58
Appendix
Survey Form – I (For Bank’s Staff)
National University of Computer & Emerging Sciences – FAST
Karachi Campus
SURVEY for research based project on

‘Need & Scope of Consumer Banking in Pakistan’
Name: ________________________ Gender: □ Male □ Female
Designation: ___________________ Qualification: □ Intermediate □ Bachelors

□ Masters □ Doctoral
Experience: □ 1-5 years □ 6-10 years □ More than 10 years
Note : To be filled by bank’s staff only
Which category of individuals do you prefer most for consumer financing?

□ Self Employed □ Businessman □ Organizational Employee/Salaried Person
What is your target market for issuing consumer loans?

□ Lowers Class □ Middle Class □ Upper Class
Which type of financing is emphasized more by your bank? (Tick one or more)
□ Personal Loan □ Credit Card □ Auto Loan □ Home Loan
Which type of customer do you prefer most for consumer financing?

□ Previous Customers □ New Customers □ Existing Customers
Is your Credit Information Bureau reliable?

□ Yes □ No
Do you frequently update your customer records?

□ Yes □ No
How do you measure customer profile?

□ Repayment Ability □ Liquidity □ Solvency □ Willingness to pay
Do you think that variation in interest rate offered by different banks effect your
performance?
□ Yes □ Yes to some extent □ No
What are the major reasons for defaults on consumer loans? (Tick one or more)
□ SBP Prudential Regulation □ Internal Policies □ Market Scenario
□ Consumer Willingness □ Improper Assessment
In case of increasing NPL, what is your reaction towards consumer financing?

□ No effect □ Increase Financing □ Decrease Financing □ Change Policies / Criteria
Any specific problem do you face in the area of Consumer Banking?
Any suggestion for improvement in the area of Consumer Banking?
59
Bank’s Staff Survey Results
Demographic Data:
Gender
Males 92%
Females 08%
Qualification:
Intermediate/Diploma 06%
Bachelors 50%
Masters 44%
Experience:
1-5 Years 42%
Above 5 years 30%
Above 10 years 28%
Which category of individuals do you prefer most for consumer financing?
Salaried Person
Businessman
Self Employed
0% 10% 20% 30% 40% 50% 60% 70%
What is your target market for issuing consumer loans?
100%
80%
Middle Class
60%
Upper Class
40%
Low er Class
20%
0%
Which type of financing is emphasized more by your bank?
60
Personal Loans
Credit Cards
Auto Loans
Home Loans
0 10 20 30 40
Which type of customer do you prefer most for consumer financing?
Existing
New
Prev ious
0% 20% 40% 60%
Is your Credit Information Bureau reliable?
100%
Yes
50%
No
0%
Do you frequently update your customer records?
100%
Yes
50%
No
0%
How do you measure customer profile?
61
Repaym ent
60% Ability
Liquidity
40%
Solvency
20%
Willingness to
0% pay
No Response
Do you think that variation in interest rate offered by different banks effect your
performance?
100%
50%
0%
Yes Yes to som e extent No
What are the major reasons for defaults on consumer loans?
No
Response
Willingness
to pay
Solvency
Liquidity
0 20 40
Repayment
Ability
In case of increasing NPL, what is your reaction towards consumer financing?
62
No effe ct
60%
40% Increase
Financing
20%
Decrease
0% Financing
Change
Policies /
Criteria
Survey Form – II (For Bank’s Customers)

National University of Computer & Emerging Sciences – FAST
Karachi Campus
SURVEY for research based project on

‘Need & Scope of Consumer Banking in Pakistan’
Name: ___________________________Gender: □ Male □ Female
Profession: _______________________Qualification: □ Intermediate □ Bachelors

□ Masters □ Doctoral
In which bank you operate your account?

□ Local □ Foreign
How will you rate your bank schedule of charges?

□ Very High □ High □ Average □ Low
Which type of bank do you prefer for consumer banking?

□ Local □ Foreign □ Any
Have you ever used any consumer financing product? (Tick one or more)
□ No □ Yes (If yes then tick appropriately below)
□ Credit Card □ Auto Loan □ Home Loan □ Personal Loan
Are you facing any difficulty in getting consumer loans? (Tick one or more)
□ No □ Yes (If yes then tick appropriately below)
□ Irrelevant Information □ Improper Guidance
□ Slow Processing □ Bank Statement □ Other _____________
Are you satisfied by the tenure for consumer loans?

□ Yes □ Yes up to some extent □ No
63
What is the major problem in Credit Cards?
□ Low Limit □ Repayment Schedule □ High Interest Rate □ Other _______
Which of the following e-banking services are provided by your bank? (Tick one or more)
□ Online Banking □ Debit Card - ATM □ Mobile Banking □ Telephone Banking
□ Internet Banking □ Online Bill Payment □ Credit Card □ Other __________
Is your bank providing any wealth management services? (Tick one or more)
□ Yes (If yes then tick appropriately below) □ No □ No Idea
□ Insurance Services □ Investment Services
□ Financial Advisory □ Other ___________
Which of the following new service would you want to be introduced by your bank?
□ Internet banking □ Money at door step
□ Online Interbank Transfer Facility □ Other ___________
Are you facing any hidden charges problem?

□ Yes □ No
Do you think SBP should review its policies from time to time?
□ Yes □ No
Any specific problem do you face in the area of Consumer Banking?
Any suggestion for improvement in the area of Consumer Banking?
Bank’s Customer Survey Results
Demographic Data:
Gender
Males 78.6%
Females 21.4%
Qualification:
Intermediate/Diploma 09.30%
Bachelors 52.66%
Masters 34.00%
Doctoral 00.60%
In which bank you operate your account?
Foreign Bank
Local Bank
0.00% 50.00% 100.00%
How will you rate your bank schedule of charges?
64
50.00%
40.00% Very High
High
30.00%
Average
20.00%
Low
10.00% No Response
0.00%
Which type of bank do you prefer for consumer banking?
No Response
Any
Foreign Bank
Local Bank
0.00% 50.00%
Have you ever used any consumer financing product?

100
80 Credit Card
60 Auto Loan
40 Home Loan
20 Personal Loan
Are you facing any difficulty in getting consumer loans?

50
Irrelev ant Information Improper Guidance

Slow Processing Bank Statement
Other
Are you satisfied by the tenure for consumer loans?

No Response
No
Yes to some
extent
Yes
0.00% 20.00% 40.00% 60.00%
65
What is the major problem in Credit Cards?
No Response
Other
High Interest
Repayment
Schedule
0.00% 20.00% 40.00% 60.00% Low Limit
Which of the following e-banking services are provided by your bank?

Online Banking
140
120 Debit Card-
ATM
100
Mobile
80 Banking
60 Telephone
40 Banking
20 Internet
0 Banking
Online Bill
Payment
Credit Card
Is your bank providing any wealth management services?

50%
40%
Yes
30% No
20% No Idea
10% No Response
0%
Which of the following new service would you want to be introduced by your bank?
Internet
60.00% Banking
50.00% Money at door
step
40.00%
Online Inter
30.00%
Bank Transfer
20.00%
Other
10.00%
0.00% No Response
Are you facing any hidden charges problem?
66
No Response
N
No
Yes
0.00% 50.00% 100.00%
Do you think SBP should review its policies from time to time?
80%
60%
Yes
40% No
No Response
20%
0%
67

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FINAL YEAR PROJECT

Need and Scope of Consumer

By: Syed Yasir Hussain

Syed Yasir Hussain (04-0224)

Department of Management Sciences

SECTION 2 INDUSTRY OVERVIEW FROM SECONDARY DATA

2.1 Banking Industry of Pakistan 04

2.6 SBP Prudential Regulations for Consumer Financing 14

2.7 Credit Information Bureau 19

2.9 Brief overview of some local & foreign banks 24

SECTION 3 RESEARCH METHODOLOGY

3.1 Strategy for Data Collection 33

SECTION 5 RECOMMENDATIONS AND CONCLUSIONS

2.1 Amount of Consumer Financing 11

2.1 Industry Overview 05

SBP State Bank of Pakistan

WMS Wealth Management Service

IMF International Monetary Fund

DFI Development Financial Institutions

SME Small Medium Enterprise

CIB Credit Information Bureau

This research is a part of my Bachelor of Business Administration degree. The

In case economy is to sustain growth through consumer finance as one of the

1.4 Scope & Limitation

• Consumer Banking Industry has a lot of potential to grow

1.6 Study Plan

Section-V of this report consists of recommendation and conclusion bases on our

2.1 Banking Industry of Pakistan

Banking sector in Pakistan has undergone a significant transformation in the recent

Pakistan has a highly developed financial sector consisting of 4 public 12 private 21

2.2 State Bank of Pakistan (Central Bank)

2.2.1 Departments of SBP

1998 2005 2006 2007

TOTAL BANKS: 46 TOTAL BANKS: 38 TOTAL BANKS: 38 TOTAL BANKS: 39

Some major services in banking industry of Pakistan;

SMS Alerts Term Accounts

In a generic sense, institutional arrangements that provide consumers with financing

NPL Ratio of Consumer Financing (SBP, 2006)

2.5.2 Home Loans

2.5.3 Personal Loans

2.5.4 Credit-Debit Cards

2.5.5 Deposit Accounts

2.5.6 Wealth Management

Wealth management is a new kind of service introduced in consumer banking sector

2.6 SBP Prudential Regulations for Consumer Financing

2.6.1 Auto Loans

• The vehicles to be utilized for commercial purposes shall not be covered

• In addition to any other security arrangement on the discretion of the banks/

• A detailed repayment schedule should be provided to the borrower at the

2.6.2 Home Loans

• The housing finance facility shall be provided at a maximum debt-equity ratio

• Banks / DFIs shall either engage professional expertise or arrange sufficient

• The bank’s / DFI’s management should put in place a mechanism to monitor

2.6.3 Personal Loans

• In case of Running Finance / Revolving Finance, it shall be ensured that at

2.6.4 Credit Cards

• Due date for payment must be specifically mentioned on the accounts

• Maximum unsecured limit under credit card to a borrower (supplementary

2.7 Credit Information Bureau

2.7.2 History of CIB:

2.7.3 Role of CIB:

Two types of reports can be generated from eCIB system:

2. Corporate Credit Information Reports

2.8 Contribution Consumer Banking in Economic Development