His close encounter with death completely changed Zafar Masud’s perspective on life. Being one of the two survivors among 99 passengers onboard a PIA plane that crashed into a residential area of Karachi almost a year ago, the incident has reinforced his trust in people. His changed perspective is now reflected in new policies of the Bank of Punjab, which he heads as its president.

“When I saw people around, the people I didn’t know, cry and pray for me, I realized they were your real asset, not money or fame,” he recalls the moments he was being transported to hospital from the site of crash.

“Today, my and the bank’s entire theme, mission and objectives revolve around only one thing: empathy for people,” Mr Masud told this correspondent in an interview. “Now we’re the employer of choice for our employees. We have done major restructuring at the bank with more focus on people.”

BoP has recently grown the size of its balance sheet to more than Rs1 trillion, which puts it in the category of large banks. “We’ve been a market leader by a wide margin in a well-secured government and the State Bank of Pakistan introduced concessionary and financing/refinancing schemes,” says Mr Masud, who has the diverse experience of working across multilateral corporations, multinationals and government.

The bank posted one of the highest profits before tax of Rs11.99 billion in 2020 and did subjective classification to make a provisioning of Rs5.1bn to mitigate possible future shocks resulting from the pandemic, turning BoP into the highest provisioned bank.

‘Consumer finance is currently a mere 5pc of BoP’s portfolio — we would like to enhance it to 15pc in the next 3-5 years’

“We have not done aggressive provisioning because we see any vulnerability in our portfolio. No. We’re just trying to be cautious here… we’ve done massive subjective classification because there is a kind of uncertainty related to the pandemic and vaccine availability. The jury is still out on how things pan out in the post-Covid-19 scenario,” Mr Masud argues.

He says the pandemic has so far left no adverse impact on the banking industry. “This is what anecdotal evidence from the microfinance sector shows. Yet we should be mindful of the underlying currents. For example, we don’t know how the borrowers, who got their loan repayments deferred or restructured when the pandemic started, would behave in the post-Covid-19 scenario. Will they be able to service their loans? That is a big question. Things will be much clearer in the next six months. There will always be a risk if the pandemic prolongs or if a fourth wave sets in. So we need to cover ourselves.”

The bank’s cautious approach towards potential future risks is not without a reason. It has seen some very bad years when its capital was completely eroded by defaults of its major customers like Haris Steel in 2008. It took the bank almost a decade to return the loan extended by the Punjab government, which owns its majority stakes, to prop it up and make the bank compliant with the provisioning requirements of the central bank in 2017.

“We have come a long way from the 2008 hit and turned the corner three years ago when we retired the government loan and started paying a dividend to the shareholders,” Mr Masud says.

However, the recovery of the legacy loans continues to pose a big challenge for the bank. “Being a public sector organisation we cannot take a write-off on the principal amount of these nonperforming loan (NPL), which is an additional hurdle for us. The new NPLs are much lesser and it’s a wrong observation that our NPLs are very high.”

“Our NPLs in the last 10 years would be negligible; we have probably been over-provisioned during this time but that certainly is the situation now as we have implemented subjective classification for the first time in the history of the bank. We’ve gone to that extent where we think that there may be a problem and we have already provisioned for it taking an extremely conservative view.”

Mr Masud wants to see the BoP stand among the country’s top five banks in as many years. “We don’t intend to be one of the most profitable banks. We want to be among the top five banks in terms of deposits and balance sheet size. It will give us the flexibility to do all that stuff that would benefit our future generations and help support the sustainable growth of this country.”

“If we aim to become the fifth-largest bank, we have to grow outside Punjab. In Sindh and Balochistan, we merely have 35 branches. Up north and Islamabad, we merely have 100 branches. Our plan is to go south and up north to expand and grow.

“The second prong of our growth strategy is digitisation. Let me tell you this: it’s no longer a luxury, it’s a necessity. We’re moving in leaps and bounds ahead in this space to catch up with other more aggressive players in this area. We aim to be in the top three banks in the next five years in digital offerings.”

Game Changer

The real growth spinner and game-changer for Mr Masud are the businesses where no other conventional bank has ventured into. “We have decided as a commercial bank with a pedigree of public service to be in all those sectors and areas where the banks are most reluctant to tread. It is not a big portfolio; we will have to create it though it will not be possible without certain regulatory measures and government support. We are trying to ride on the back of government schemes; wherever there are government schemes and first loss guarantees, we immediately grab them. Without the government, I will not take such risks.

“We are aggressively involved in government schemes like Kamyab Jawan, low-cost housing project and Punjab Rozgar scheme because we see an opportunity to grow our book in these unconventional businesses. Our experience with government risk has been very rewarding, which gives us enough comfort to go in aggressively in these schemes than other banks that do not appreciate this risk in the way we do. We want to be the leaders in small and medium enterprise (SME) and agriculture financing. Given the constraints in these sectors, the best way to enhance exposure there is by participating aggressively in the government schemes.

“We believe that this strategy will not only grow our bank but also develop the market for those sectors, which are currently not part of financial inclusion and the organised sector. This is absolutely critical for sustainable economic growth, which is the only way to alleviate poverty.”

On long-term project financing, the BoP president claims his bank was already one of the major players in this space. “However, we’ve only been a participant until now but have decided to reposition ourselves and will be leading the transactions in future. We have rejuvenated the entire investment banking business and set up a fresh cash management team, which would go a very long way in generating and leading project financing translations in Punjab and across the country.”

The BoP is a serious player in personal loans, car and mortgage financing and plans to expand in this domain to exploit the big opportunity in the consumer finance space. “Consumer finance is currently a mere 5 per cent of our portfolio and we would like to enhance it to 15pc in the next three to five years. Credit cards are very much part of our plan and the work is also underway on it. We’re targeting to launch it by the end of this year or early next year.

To Mr Masud, the biggest challenge is access to information about the borrowers and their verification. The government and the regulator are very much aware of this gap and working with banks in addressing this appropriately, he adds. “Another issue is that to run these businesses successfully, we need a major shift in the mindset of commercial banks. These businesses are very different from conventional corporate or commercial banking business and if SME, housing and agriculture are pursued on similar lines then it would never take off and that’s what we’re witnessing currently. These businesses may actually be handled in a sort of a silo in a positive sense to be a success,” he concludes.

Published in Dawn, The Business and Finance Weekly, May 3rd, 2021