KARACHI, Feb 8: Many parts of the system have come together for foreign banks’ consumer business to grow, says Zubyr Soomro, President of the Pakistan Bank Association (PBA) and adds: “You will see a serious level of growth in consumer business.”

The market for mortgage financing has begun to develop. Lending for consumer durables has become possible. Bank can take hypothecation of consumer durables. Personal loans can be used for purchase of consumer durables like refrigerators, airconditioners, television sets. The banks can take hypothecation of these goods.

Zubyr Soomro who is the country head of the Citibank told Dawn that his bank has been in the mortgage finance for past several years but it is “now that we are aggressively marketing it.”

Under the repackaged mortgage financing, loans can be for three to fifteen years, (for repayment period). The interest is being quoted at 14.69 per cent. Mortgage lending limit has been raised to Rs5 million. For consumer mortgages, says the PBA president, “it is exceptionally low rate if you look at the Pakistani environment.”

One of the many parts of the system, which have come together, and was missing is the credit bureau, to provide information to 6-7 banks, on consumer clients. For loans to corporations and loans above Rs500,000, banks could call the Credit Information Bureau at the State Bank to know a party’s position and defaults, if any. But for small loans, it was not there.

Zubyr Soomro who has been PBA chief for two and a half years and is also the chief of American Business Council, a trade association of US multinationals in Pakistan, for past 5- 6 months says: “Now the people have come into the market and six banks use one system or a company for credit card loans. So far, as the data operates, we have information on defaults. But I think that it is a good start.”

Even if, the default data is with a small number of 6-7 banks, we immediately find out the amount against credit cards, the limit and the defaults on loans, so on and so forth. In other countries, where you have consumer banking, you have the credit information system which covers the whole market. In our case, it has just begun.

Yet another major development has been that foreign banks, specially the major players, Citibank, ABN-Amro and Standard Chartered Grindlays Bank, has repositioned themselves and their business is growing. Different banks have taken different postures. The focus of major foreign banks has shifted to consumer banking. With the State Bank being supportive of their efforts, the foreign banks are looking for more whether it is corporate financing, credit cards or mortgage financing.

To get a perspective, Soomro says, you have to go back to 1998 when all the foreign exchange deposits were frozen. These formed the bulk of the funding or business of the foreign banks. Ninety per cent of the balance-sheet came from these deposits. These had been there for more than 10 years. So the whole business was built around these deposits. And then they (deposits) went away. After freezing of deposits, the option was to rebuild or stay as small entities.

The foreign banks have also been affected by the risk environment of the market. After 1998, there was Kargil, change in the government and the economy was fragile.

Zubyr was confident as the economy is building up, you would see the interest of foreign banks building up.

The foreign banks have become wiser by their experience in consumer business. The Citibank has been doing mortgage financing on a small scale. The initial effort was not successful and the bank took a lot of losses.

Zubyr does not regret the losses because consumer lending is a risky business. He explains: “When you begin to go for consumer business, you are going to have losses. That was a learning process and we closed it and repackaged the mortgage financing. It has been on a much smaller scale. Now we are aggressively marketing it.”

There are still hurdles that limit the scope of mortgage financing. The legal system has been a big handicap specially for recovery of debts. A major problem is now the legal title to property.

A very small portion of the property in city like Karachi, has legal titles. The PBA president estimates that 90 per cent of the high rise buildings have been built illegally and they do not have any permission. It is the big chunk of the property which the banks cannot support. You see, how small the property holding is in legal titles. You have to encourage mortgage financing by changing the laws, if you want to encourage the people to buy and to build houses. If there is no legal title, it becomes difficult for the banks to take up proper mortgage and to lend against them. I think this is what the government should look into and expedite.