The quality and affordability of banking services, coupled with the perceived risks in lending, define the pace of growth of an economy’s credit market.
Prior to the global financial crisis of 2007 and 2008, Banking Mohtasib Pakistan (BMP) was set up in 2005 as part of far-reaching, market-oriented reforms to address complaints of bank customers. Its performance over more than a decade throws some light on the quality of the banking service.
Affordability for less affluent businesses, individuals and farms is managed by selective subsidised credit. The lending risks are mitigated by risk-free investments in government papers. Banks facing competition from currency dealers and informal market players are eligible for central bank incentives for boosting workers’ remittances.
Bank staffs require proper knowledge and training to protect their customers. They need to be more vigilant and put new measures in place to shield their system from cyber attacks
The number of complaints lodged with BMP has seen a rise. This is due to a combination of factors: growing public confidence in BMP; the surging numbers of banking products (such as digital services) where there is very little awareness of the risks involved; banks’ inability to strictly monitor and adopt real-time remedies despite rules set by the regulators backed by guidelines.
The bulk of complaints in 2016 were from Punjab and Sindh where banks have a much stronger presence than in other provinces.
According to the BMP annual report released this month, the banking ombudsman received a total of 8,780 formal and informal complaints in 2016, up 44 per cent from 6,091 in the previous year.
The ombudsman receives complaints of two types: formal and informal. Those which follow the mandatory legal procedures are classified as formal, and those which do not are labelled as informal. In informal cases, procedural guidance is provided to the complainants, and when warranted, banks are asked to resolve the issues through reconciliation.
Of the 10,768 formal complaints received by BMP since 2015, 9,583 were amicably resolved through reconciliation. Compliance orders were issued in a mere 1,195 cases.
Mohtasib Anisul Hassnain recently told the Multan Chamber of Commerce and Industry that the cases are decided free of cost, and the ratio of implementation of Ombudsman’s orders stands at over 98pc.
In a country where confrontation is a hobby, the BMP has successfully demonstrated how reconciliation can resolve problems.
Of the 7,527 total complaints, 7,136 were suitably addressed in the year under review. In comparison 4,874 informal complaints were received in 2015. In sharp contrast, formal complaints numbered only 1,253 and 1,217 in 2015.
The major issues arising from the complaints in 2016 identified in BMP’s annual report were as follows: internet banking frauds, mis-sales of third party products including bancassurance; risks in branchless banking and delays due to lengthy commercial bank approval procedures.
E-banking channels recorded a healthy growth of 16pc in volume and 4pc in value in 2016. However, the BMP report noted that the extensive use of internet facility for branches and mobiles are leading to serious financial risks, both for banks and their customers.
The banks’ lack of proper response to the emerging risks results in a large number of frauds; the customers lack awareness of looming cyber attack threats and are thus cheated.
Banks have failed to implement in letter and spirit the State Bank’s Regulation for Security Internet Banking. Bank staffs require proper knowledge and training to protect their customers. They need to be more vigilant and put new measures in place to shield their system from cyber attacks.
In the fast fund transfers through branchless banking, some visible signs of financial risk have been observed.
There are reports of disputes and alleged fraud complaints where unauthorised funds from commercial banks ultimately land with microfinance banks and account holders of branchless banking, to be withdrawn by fraudsters. However, no action can be taken by the BMP since it lacks jurisdiction over microfinance banks.
Similarly, mis-sales of third party products including Bancassurance have occurred owing to frail control and weak monitoring by banks; guidelines issued by the State Bank and the Securities and Exchange Commission of Pakistan to safeguard the interests of the depositors and the general public have been disregarded.
Bank executives are neither properly trained nor do they possess sound knowledge of insurance products; they tend to misrepresent insurance policy prospects.
While making a sales pitch for their subsidiary asset management companies, banks do not fully inform their customers of ramifications which in some cases deprive their customers of their principal amounts.
The BMP report has stressed the need for the State Bank to issue more elaborate and exclusive guidelines for all segments of third party products in the interest of banks as well as their customers.
The Central Monitoring Committee, responsible for verification of details furnished by the customer, should avoid approvals of proposals without sound financial inflows or appetite. The CMC should function independently and must certify that prescribed SBP and SECP requirements have been fulfilled.
Owing to cumbersome compliance in the resolution process, and possibly also the complex nature of complaints, banks are unable to submit their investigations within the timelines set by the Federal Ombudsmen Institutional Reforms Act 2013.
Delays also occur in simple cases like auto loans and minor matters including complaints against bank staff. Similarly, payments to the aggrieved party take unduly long. The banks need to cut the red tape in the system.
Published in Dawn, The Business and Finance Weekly, November 13th, 2017