Banking products are becoming more aligned with financial market conditions being shaped by the overall economic situation.

Over the past few years, banks have introduced new products for deposit mobilisation, cash management, inland transfer of payments, retail banking, agricultural financing, investment in commodities and branchless transactions.

Both commercial and Islamic banks have also come up with tailor-made personal loan schemes for individuals. And many banks have launched refined schemes to facilitate the inflow of remittances. So, what is the common thread?

“The common thread is the need to support, and also benefit from, the expansion in the domestic economy and growth in remittances. Earning higher interest income amid constraints has also been a driving force in many cases,” opines the head of big local bank.

One common feature of newly developed banking products, particularly those in the area of home remittances, is encryption application that make them secure. Another one, which is also the hallmark of other products, is online tracking, to let users know the status of the facility.

Despite two big negatives of recent years — low average economic growth and weak external sector inflows — bankers say they found some space for business opportunities.

“These negatives lead to designing financial products for the corporate sector,” says the head of the corporate division of a large local bank.

“But anticipating people’s financial hardships in a low-growth environment, some of us launched or refined loaning schemes for salaried people. And in the absence of enough foreign portfolio investment till 2012, others introduced schemes for investment in commodities including gold.”

Over the last four years, excessive government borrowing from banks resulted in over-investment of banking funds in debt security papers. This, in turn, had an adverse effect on private sector credit growth, and banks made no visible efforts to develop products for credit marketing.

But as big companies, and even small businesses, relied more on their own cash flows to finance some of their capital spending, “banks started refining existing investment advisories or developed new vehicles for them,” says the head of a corporate division of a large local bank.

For instance, in a recent innovation in auto financing, Meezan Bank entered into an agreement with Pak Suzuki to facilitate its customers in paying lower monthly rental on car leasing using a tailor-made residual Ijara.

Deposit mobilisation schemes of banks launched in the last few years demonstrate how they maintained their deposit bases in line with the central bank’s efforts to promote domestic savings.

The SBP has become more proactive in ensuring that banks do not violate or ignore the requirement of minimum deposit rate (MDR), and also linked the MDR with its own repo rate late last year.

And if we see the launching of three deposit schemes by two different banks, all aimed at attracting deposits from teenagers, we find that banks are busy tapping future savers from a hitherto untapped class.

“Deposit volumes of this category are not big, but the cost of mobilisation is low. Banks are earning a decent return on them even after meeting MDR requirements, besides broadening their customer base,” says a senior banker overseeing one such scheme.

Whereas the development of banking products is becoming more dependent on financial market conditions, the banks that develop the most suitable products are also reaping huge benefits.

A big jump in interest-based income of UBL owes much to this reality. The bank’s money transfer facility — Omni, carrying a double-digit return — is doing roaring business. Designating thousands of Omni shops in over 650 cities and towns across Pakistan for facilitating inland money transfer meets several market needs, including that of branchless banking in rural and suburban areas.

The launching of dollar modaraba certificates in 2011 by an Islamic bank also shows how banks are strengthening their forex positions in an illiquid forex market, thus meeting another market need. By choosing such a course, they are also providing people an opportunity of additional profit earning on forex holdings, which could have otherwise yielded the benefit of exchange rate appreciation only.

The agricultural sector has performed better than manufacturing in the recent past, and though the banking industry as a whole is still not meeting the bulk of borrowing requirements of this sector, some banks have successfully exploited positive developments in its certain sub-sectors.

Dairy farming is one of them. A few banks, including a public one, have joined hands with Nestle and are meeting the financial needs of the company’s progressive milk suppliers. The bank had first developed a banking product for this purpose back in 2011.

Senior bankers say banking products developed till last year fulfilled the requirements of a certain economic and market environment. Now, changes are visible. Manufacturing and exports are recovering, agriculture and industry are inching towards greater value-addition, and the services sector is expanding fast.

The regulatory environment is tougher than before, and the government is trying to boost its non-bank borrowings. Further deepening of financial markets is in sight.

“Development of banking products must be realigned with such emerging realities,” says the former head of a foreign bank.