Download Important Segment of Banks

Important Segment of Banks
INTRODUCTION
Purchaser fund is a perceived money related innovation over the world, basically in set up
economies, where it constitutes essential section of banks loaning range/portfolio. In the
Pakistani managing an account fragment, however, the advancement of the buyer financing reach
is a most recent ordeal, as banks have periodically focusing on loaning to the corporate portion
and open division substances.
In the past 5 to 6 years, shopper saving money had an exceptional development in Pakistan. This
phenomenal development has taken after privatization of state-possessed banks, managing an
account changes brought in regards to through the SBP and logically more market situated
approach essentially implied by banks at a gigantic urban purchaser base. Whether vast banks or
little, worldwide or national, every one of them is outfitted towards making of its spot in an
effectively merciless setting which is the impact of shopper saving money, global banks, for
example, standard sanctioned, Citibank and ABN AMRO have the hold up of the data base and
funds of their abroad principals which is made them first to acquire customer items in Pakistan.
UBL, HBL and MCB were the as of late privatized banks which have occupied with buyer
financing activities in enormous urban areas as well as littler ones as well. Because of their
monstrous branch set-up they created high volumes of managing additionally at the
indistinguishable time diminishing the costs of their items and administrations they offer. In year
2002, HBL's buyer saving money territory was esteem not exactly a billion rupees yet toward the
end of year 2004, it is quality 17 billion.
An arrangement of components is responsible for the broad engaging quality of buyer fund as of
late: the monetary advancement movement over the earlier decade or somewhere in the vicinity,
has prompted the development of a managing an account framework which is generally claimed
and worked by the private portion. Besides, the intrusion of liquidity in the saving money portion
from financial year 2002, constrained banks to expand and develop their wage base by
wandering into some time ago untouched ranges and third, the simple fiscal method state of mind
of the SBP from 2002 to 2005 furnished fitting clients with financing alternatives at little rate to
take care of up their utilization demand.
Under the supervision of the State Bank of Pakistan, all banks and DFI's work. State bank of
Pakistan isolated the operations of the banks into four principle portions which is Corporate,
farming, SME and purchaser. Every one of those banks which work in Pakistan ought to take
after the control made by the state bank of Pakistan.
Problem definition:
In a very little time span of consumer banking in Pakistan, it has made an outstanding progress
and performed a very positive role in boosting our economy and also in meeting the needs and
necessities of the customers. Whether large banks or small, international or national, all of them
is geared towards creation of its spot in an already cutthroat setting which is the effect of
consumer banking. Due to growing economy of the country and betterment in the level of
household income in Pakistan have formed many more opportunities for consumer banking. But
at the same time it has also some drawbacks in their regulation and also difficulties for borrowers
and lenders in the current system. In this research statement the present, past and future of the
consumer banking industry will be analyzed.
Problem Statement
The problem statement of my research is,
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"Need and Scope of Consumer Banking in Peshawar"
I will only focus on this very factor and its effect on the lenders, borrowers and economic
growth.
Objectives of the study
In this study, it will try to take out the problems in the present structure of consumer banking
from both borrowers and lenders point of observation and also will try to find out the
opportunities in consumer banking in the coming future.
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Hurdles/problems faced in the existing system of consumer banking.
Consumer banking function in country economic growth.
Exploring opportunities in the field of consumer banking in future.
Local and foreign banks assessment/comparison by their services.
Scope of work
The region under attention is needs and scope of consumer banking especially in the area of
Peshawar. As consumer banking segment is a fast growing sector of both local and internationals
banks in Pakistan but facing issues like, problems in consumer banking system. For that reason
some of the banks for the time being stop consumer financing. Beside this some other banks
have not yet provided full consumer banking.
What are the opportunities in consumer banking and its result on economic growth of the country
will be analyzed. But due to the time restraint and lack of experience with research study their
many be some area remain uncovered.
Assumptions
For this research, I am taking some assumptions.
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In consumer banking industry, equally borrowers and lenders are confronting problems.
Huge interest, incorrect policies, lack of learning, etc are the factors for the turn down of
industry.
Consumer banking has a bundle of potential to rise in Pakistan.
Research Methodology
The population for my research consists of both genders of diverse ages who are working in
banks and also from the customers 0f the bank that has an account in any of the bank of
Peshawar region. In total sixty-five samples, researcher will be taking from customers out of
hundred forms and thirty-five from the banks employees.
There will be different survey forms for both bank employees and customers through whom
researcher can be able to identify troubles for both lenders and borrowers and their solutions in
the area of consumer banking. In this research the researcher will target both local and foreign
banks working in Peshawar. Along with survey forms researcher will also take interviews from
managers of different banks.
All these survey forms and interviews will be from the employees working in banks and
customers of the banks in Peshawar region because in this research the researcher targeted only
the Peshawar region.
Sources of Data
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Secondary source: - Most of the secondary data is collected from different published papers and
from different websites on which relevant data is available. As on this area we don't have
sufficient data available specifically for Peshawar, so I could only estimate/assume it from the
whole Pakistan.
Primary source:-primary data will be collected through survey forms from both customers and
employees of the banks as well as researcher will take interviews from managers of the banks.
Sample size: - My target are the customers and employees of the banks in Peshawar but its too
difficult to take interviews and fill survey forms from all of customers and bank staff, so
researcher will be taking a sample size of hundred (100) which include sixty-five (65) customers
and thirty-five (35) employees of the banks in Peshawar as well as five (5) interviews from
managers of the banks in Peshawar.
Inclusion criteria: - persons who has an account in any of the bank in Peshawar area and has
understanding of consumer banking will be included and employees who are currently on
services in banks of Peshawar.
Tools to be used: - I will be using two tools for taking information.
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Survey forms/questionnaires
Interviews
Study plan:Chapter- II of the research is based on the literature review (secondary data) and industry
overview which will give the researcher a base of the consumer banking industry in the Pakistan,
consumer banking products and services offering by the local and foreign banks and their
comparison and a short introduction of few banks.
Chapter - III of the research will be the research methodology, which consists of sample size,
population, and technique of the research and tools for data analysis.
Chapter - IV of the research is all about analysis and findings from the data which the researcher
collected from the customers and employees of the banks.
Chapter - V of the research will give recommendation and conclusion on the basis of the research
findings and analysis.
Literature review
Consumer financing has extended in Pakistan at an extraordinary speed over most recent seven
years. Banks earned record income within the generous room for credit rule provided by the
SBP. The important matter in consumer financing from national economy and individual
consumers point of view is, that Pakistan has the maximum interest pace spread in the world.
While result of Consumer Right Commission of Pakistan analysis with situation to auto loan, it
showed that the proportion of respondents whose request for car financing were discarded is
higher (24%) than the borrowers who are at present availing car financing facility (14%). Also
the report highlight the difficulty of credit card users, that 47 percent respondent complained that
without any information providing to us they renovate in the plan of charges, and 11.3 percent
respondents which suffers because of hidden charges.[1]
Fast expansion in consumer banking range of the banking sector in current years has generated
an ensuing dispute. The general opinion is that consumer finance has created troubles for less
financially educated customers. In Pakistani banking sector it is new trend, while two key banks
take an initiate in introducing credit cards in banking segment in the mid of 90s but that was just
restricted to the salaried customers and businessmen. The financial liberalization progression
over the previous decade or so, has led to the formation of a banking system which is mostly
owned and operated by the private segment. Secondly, the invasion of liquidity in the banking
segment from fiscal year 2002, forced banks to diversify and enlarge their income base by
venturing into formerly untouched areas and third, the easy monetary procedure attitude of the
SBP from 2002 to 2005 provided appropriate customers with financing options at little rate to
meet up their consumption demand. Providing purchasing power to the medium class customer
has been the mainly important accomplishment of this product set. Not only people been capable
to high their standard of existing life by buying a variety of consumption goods which were
formerly treated as luxuries.[2]
Banking sector acted as a vehicle in the improvement of the economy of the Pakistan. The
development in the banking segment has not just in terms of asset expansion and profitability but
also in of diversification of products and risk profile. The banks have targeted some of the
formerly underserved segment like consumer finance which has witnessed significant growth in
the past few years. Main factors behind such a huge expansion in consumer finance might
includes little interest rates, flush of liquidity, product modernism, greater than before
competition, financial liberalization, and highly growing income level is the main cause of high
economic growth. At the same time, indefensible consumer expansion in less strong
macroeconomic environment, unsuccessful prudential and regulatory structure, not a strong risk
management system and lawful infrastructure can form systemic vulnerabilities. In 2006,
Consumer loans increased by 29 percent or increase of Rs72.4 billion and reached from 252.6
billion to Rs325 billion. Due to determined higher growth, the share of consumer finance in all of
the loans has increased to 13.5 percent in 2006 from 9.4 percent in which was in year 2004. [3]
The increase in credit card purchases was corresponding by the expansion in credit extension to
further products such as individual loans, banks overdraft, car loans, store cards, payment of
utilities in debts, and increase in consumer credit via mortgage lending. All of these products
have its personal unique features, so that the consumer financial segment includes a blend of
credit and interest rate hazard in difficult economic and financial surroundings. Consumer credit
is huge not only in monetary expressions but also large numbers of customers involved and also
the impact on those who deprived of consumer credit. The enlargement in consumer credit
outstanding in the last 50 years is truly stunning. In the US and Canada for total trade banking
and consumer lending is huge, it cross over corporate debt by almost 50 percent with household
debt in the united states crossing $7.2 trillion in the year 2000, almost double the value owed in
1990. Not all of this increase is because of borrowing on credit lines. Credit cards have become
more and more important as a method of wealth transmission. In the UK, 1316 million dealings
by plastic cards in 1993 of which 724 million were by credit card compared with 3728 million
dealings by cheque. But in year 2002 plastic card practice had overtaken cheque practice with
4814 million dealings on plastic card of which 1687 million were by credit cards.[4]
The present era of cutthroat competition, it becomes a requirement to success to have a huge and
successful selection of products and services through which the banks can encourage and then
triumph their customers. In consumer banking they offer such as loans, credit cards, simple
installments and many more. Not each bank could offer a credit card and not every one of the
banks could provide the services so consistently that do currently. There were few international
banks that attempted to provide anything remotely similar to consumer banking. International
banks such as standard chartered, Citibank and ABN AMRO have the hold up of the information
base and finances of their overseas principals which are made them first to bring in consumer
products in Pakistan. UBL, HBL and MCB were the recently privatized banks which have
engaged in consumer financing actions not only in big cities but also smaller ones too. Due to
their massive branch set-up they generated high volumes of dealing but also at the identical time
reducing the prices of their products and services they offer. In year 2002, HBL's consumer
banking range was value less than a billion rupees but at the end of year 2004, it is value 17
billion.[5]
Commercial banks had entirely ignored consumer financing as an action Form almost fifty-four
years in Pakistan, There was negligible realization of the matter that the trademark of healthy
economies is not idealistically high dependence on exports but on demand nationally, and
expansion of indigenous resource and industrial bases that favors domestic utilization. The big
desirability in extending financing services to the passive consumer sector is the vision of
earning high interest rate, because consumers are flexible targets as far as haggling over interest
rates taxable to them are concerned. Banks are belatedly trying to rectify this huge
macroeconomic structural inequality but given the remarkable pattern of economic
developments, but their efforts to promote consumer finance. While lesser interest rates have
definitely enhanced borrowers' capability to borrow and service consumer loans, the recently
created demand is approaching prices of consumer durables to out of reach.
Consumer finance is an uncertain ball game. The well-known yellow cabs system was the only
big test in consumer finance in Pakistan, which was definitely a bad experience for nearly all
banks who took part in it. Admittedly, political twists played a giant role in the breakdown of the
system but operational inadequacies of banks played a superior role in this enormous failure. A
key factor in that failure was the operational deficiencies in banks, mainly in assessing an
individual's future refund capability keep in view his or her varying circumstances.[6]
In Pakistan, consumer finance regardless of fast growth in early period of 2-3 years has moved
towards declining. It has absolutely raised a lot of questions about its further prolongation and
growth in coming years. The mainly important query is: can it work as a medium of economic
development mainly at a time when exports have revealed slow growth, state saving rate is low,
inflationary stress is determinedly there over the three years, national and international markets
and economic group of actors have become extremely aggressive and banking sector is highly
concerned to defend its capital and enhance itself with higher profits on loans than government's
concern regarding boosting economic development. Lending by credit cards, public/individual
loans, automobile loans, loans designed for durables and housing finance comes out the main
products of consumer finance. They formed domestic insist and lending policy by the banking
sector in quite delicate ways. Consumer finance has also brought social transform through huge
circular of money and easiness of income constraints for borrowing mainly among those medium
class people. That was excited to become main part of rising economy and benefit from
economic growth. The genuine beneficiaries of consumer finance are those people/citizens who
did not have capability to purchase luxurious household items in a solo go but could pay for
them due to consumer finance; the profit-making banks due to consumer finance have been
earning huge interest and high returns on their investment and the economy that got momentum
for growth.[7]
References:
1. Khalid, S. (2008, July 28). "Consumer financing expands at high rate". The News.
2. Babar, S. Z., Iqbal, J., and Afzal, R. (2007-8). "Perspectives on Consumer Finance in Pakistan",
Financial stability report, pp 87-88.
3. Malik, L.F., Rizwan, M., and Ali, A. (2006). "Consumer sector", Banking system review, pp 24-25.
4. Thomas, L.C., Oliver, R.W., and Hand, D. J. (2005). "A Survey of the Issues in Consumer Credit
Modelling Research", The journal of the operational research society, Vol. 56, No. 9, pp10061008.
5. Ahmad, S. I. (2005). "Consumer banking in Pakistan", Marketing association of Pakistan.
6. Shahid, A. B. (2003, March 10). "Consumer finance: what are its chances of success?"
7. Sharif, M. (2008). "Trends in consumer finance and implications for macro-economic indicators",
business and finance review.
1. Khalid, S. (2008, July 28). "Consumer financing expands at high rate". The News.
2. Babar, S. Z., Iqbal, J., and Afzal, R. (2007-8). "Perspectives on Consumer Finance in Pakistan",
Financial stability report, pp 87-88.
3. Malik, L.F., Rizwan, M., and Ali, A. (2006). "Consumer sector", Banking system review, pp 24-25.
4. Thomas, L.C., Oliver, R.W., and Hand, D. J. (2005). "A Survey of the Issues in Consumer Credit
Modelling Research", The journal of the operational research society, Vol. 56, No. 9, pp10061008.
5. Ahmad, S. I. (2005). "Consumer banking in Pakistan", Marketing association of Pakistan
6. Shahid, A. B. (2003, March 10). "Consumer finance: what are its chances of success?".
7. Sharif, M. (2008). "Trends in consumer finance and implications for macro-economic indicators",
business and finance review.
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