“We are for sure the fastest growing Islamic bank in Pakistan and we have different thresholds to measure and ensure that we are not only keeping pace with the market but exceeding it”.
An exclusive Interview with Ahmed Khizer Khan, President & CEO, Burj Bank Limited
What is your view regarding the growth of Islamic Banking globally, and in Pakistan?
The global economies, and the financial markets, are at a turning point. Fast growth economies in Asia, Middle East, Africa, Latin America and Eastern Europe now form almost half of the global GDP and, in 2010; they contributed 70% to overall global growth. These trends have accelerated in the last two years.
The Eurozone crisis and the protests against the global financial system, which we have seen across the world, present our industry with a golden opportunity. It is now time to talk about how Islamic finance can contribute to long-term inclusive, equitable and sustainable economic growth not just in the Middle East, but in every country across the globe. Industry forecasts suggest Islamic banking assets with commercial banks globally, will reach $1.1 trillion by the end of this year. Islamic finance may have come a long way in the past decade but its total asset base of $1 trillion is still less than one per cent of global banking assets. As for MENA, Islamic banking assets increased to $416bn in 2010, representing a five year CAGR of 20% compared to less than 9% for leading conventional banks. As new geographies open up to Islamic banking, the MENA Islamic banking industry is expected to more than double to $990bn by 2015.
In Pakistan, Islamic banking penetration stands at about 7.5%. Being the 6th most populous country, Pakistan is now the second largest Islamic nation in the world with over 180 million people, and continues to grow rapidly. Till date the banking sector has only been able to tap roughly 20 million customers. According to our analysis, an untapped banking market of over 40 million customers still exists within the country. Islam is the predominant religion in Pakistan and Shari’ah-compliant Banking as of today has a very small market share, thus reflecting huge potential for growth in this sector.
Though it is true that greater awareness of the inbuilt strengths of Islamic finance has contributed towards increased international participation in Islamic financial markets, awareness alone is not sufficient to ensure sustainable growth for our industry in Pakistan and beyond. To remain competitive we have to continually innovate and adapt. If we are to challenge the conventional banks’ entrenched position in international and local financial deals, we must develop the capacity to structure multi-currency and cross-border transactions and build scale.
Islamic banking and finance industry has been on a steady and consistent growth path, with the Middle East being its nerve center. Though the industry has built a wealth of opportunities and options for investors over the last decade, a lot more still has to be done in order for the industry to successfully compete with their conventional counterparts.
You have recently completed your first year as the President and CEO of Burj Bank. How has the journey been so far?
My first year at Burj Bank has been an absolute roller coaster ride. I clearly remember my first day, spending the whole day pondering over how we can work as one team and turn this ship around towards becoming the pinnacle of Islamic Banking. Today, I can proudly say that with the help of Almighty Allah, we have managed to get ourselves recognized as the fastest growing financial institution in this country. Today our company’s vision of becoming the Islamic Bank of Choice seems approachable. Our core brand values of “Purity”, “Integrity”, “Passion” and “Devotion” are being lived out by the people running the company; demonstrating in their personal and business lives that they passionately believe in these values.
My initial focus was towards building a solid foundation for the future growth of the Bank. I am pleased that our business model has produced outstanding financial results in the first 3 quarters of 2012 and the balance sheet has been strengthened phenomenally. We continue to be profitable on a month-on-month basis. Our deposits have witnessed excellent growth. The Bank is now focusing on rationalizing the deposit mix to lower the cost of funds in order to ease pressure on spreads arising from discount rate reduction. We have booked fresh
financings during the period without compromising portfolio quality and continue to focus on building a high quality and diversified financing portfolio. Our GMA (Global Markets & Advisory) business has outperformed the industry and delivered great results for the Bank. I can proudly say that in the first nine months of this year we have posted a profit of PKR 194 million before tax.
By the end of this year our footprint in the country would have increased to 75 branches. Inshallah, in the next 5 years, Burj Bank will have over 300 branches as well as an established non-brick and mortar banking model in place. Over the next 5 years, Burj Bank will emerge as one of the most important players in the Pakistani banking sector and can also be expected to have a significant international presence.
Give us a background about your major shareholders.
Burj Bank has a rich Middle Eastern background with the financial and technical support of a great institution, ICD Jeddah (Islamic Corporation for Development of the Private Sector) which is the private sector arm of Islamic Development Bank, Jeddah. ICD is working for economic development and social progress in various Muslim countries by investing in the private sector. Other major shareholders include Bank Al-Khair from Bahrain, Gargash Enterprises from the UAE and Al-Romaizan from Saudi Arabia. This strong background gives Burj Bank exceptional financial strength and absolute credibility.
How have challenges like the recessionary economy, the energy crisis, poverty, low literacy levels and the fragile security situation affected the Islamic banking sector?
Challenges are existent in every venture and industry. The success of any individual, organization or industry lies in the way we confront those challenges and convert them into opportunities. While all the mentioned problems are true, Pakistan has time and again proved itself as a resilient economy by outperforming every time. For the Islamic Banking sector, in particular, some of these challenges have actually become opportunities for us. For instance, the recessionary economy has diverted many advocates of the conventional banking system to shift their focus towards Islamic Banking. Similarly, the energy crisis has brought us to our drawing boards to come up with strategies of financing various energy projects through Islamic modes of financing. Low literacy levels have pushed us to come out of our shell and educate the masses regarding Islamic Finance, whereas the fragile security situation has strengthened our faith in our religion, consequently pulling more and more people towards the Shari’ah-compliant financial system.
How favorable has the regulatory framework governing Pakistan’s banking sector been towards Islamic Banking?
State Bank of Pakistan has done an excellent job in bringing the Banking industry to its current level. Particularly in terms of Islamic Banking, I would give special credit to SBP who learned from the experience of Islamic Banking during the 1980s and, based on those experiences, re-launched Islamic Banking in 2001. Measures taken by SBP have resulted in a countrywide roll out of Islamic Banking. Islamic Banks in Pakistan are presently in their evolution phase and still there is enormous potential to grow this market. With the commitment of our regulators, I have no doubt that this will be made possible in the times to come.
Based on your experience in other markets, how do you compare the Pakistani Human Capital to others in the region in all areas?
Well, if we take a look at the history of the country, Pakistan has faced a series of tempestuous challenges since its inception and every time it overpowered all the grave dilemmas by dint of its resilient, brave, and hardworking people. Whether it was resettlement of refugees in 1947, or war against India in 1965 or destruction from earthquake in 2005, the brave nation countered the challenges successfully. Pakistani courage is legendary. The way with which the people of the country dealt with earthquake devastations and battled against floods showed the world that the people of Pakistan are blessed with extra-ordinary potential.
Around 68% of Pakistan’s population is regarded as youth (under 30 years). Many of them are now coming into the labour force, increasing the size of the workforce by over 3 per cent annually. However, the demand for skilled labour in the country still exceeds the supply. The quality of the skilled workforce of Pakistan stands to be world renowned, and has successfully made its mark in every field. In order to further increase this pool, key focus is needed on two fronts. Foremostly, reforming statutory regulations that encourage job creation within the formal economy and simultaneously, creating programs that help informal workers adjust to labour market shocks and build future earnings potential.
The supply of perfectly skilled labour force to industries can trigger the industrial growth rate. Pakistan’s vocational training institutes need to address the skill development needs of workers and develop programs for their skill enhancement in line with
international standards, because the types of skills demanded in the job market are changing rapidly.
A lot of our skilled labour force today is being poached by foreign countries offering better wages, slowly devouring our labour force and leaving a big gap within the country, affecting internal productivity. This is obviously having a direct impact in our formal job market, as lot of people who are on contract tend to go for other jobs. We do believe in protecting jobs but the focus should be to protect workers. Our people undoubtedly possess extraordinary potential, which has been recognized globally and putting this potential to purpose is what is required.
What is Burj Bank doing on the Corporate Social Responsibility front?
Corporate Social Responsibility is at the heart of our business and we believe that giving back to the community and this country is just as important as our Core Brand Values. We understand the responsibilities of being a corporate citizen and value the importance of the activities done under CSR. Burj Bank Limited has been able to seamlessly integrate the social, ethical and environmental concerns of the society in its business model. It has proactively participated in community well-being and growth efforts, with its employees contributing to various philanthropic initiatives under the aegis of the Burj Charity committee.
Recognizing every Burj Bank employee as a powerful agent of positive change, we recently launched an employee driven CSR initiative - “Giving beyond the Workplace Campaign”. Under this initiative we carried out a number of activities that involved spending quality time and dining with the beautiful children at the Edhi orphanage and distributing clothes and household items to the children at the SOS village. Recently we also hosted an event where we distributed donations to the families of the victims of the Baldia Town fire incident.
What is your vision for Burj Bank and what message would you like to give to your readers?
The FY 2011 – 2012 has seen the Bank grow from strength to strength with significant deposit growth, increased capital, enhanced entity ratings, a rejuvenated management team, a healthy balance sheet and an extremely successful re-branding effort. Our growth plans ahead are aggressive whereby we are opening 25 new branches this year and targeting a network of 300 plus branches in the next 5 years. So there is a lot of work that is happening and our customer growth is very rapid. We are for sure the fastest growing Islamic bank in Pakistan and we have different thresholds to measure and ensure that we are not only keeping pace with the market but exceeding it.
Our vision is to make Burj Bank the Islamic Bank of Choice and I have faith in my team’s capability to achieve this customer-centric vision. I can confidently say that Inshallah in the coming years, Burj Bank will be one of the greatest success stories in the financial sector of Pakistan.
Ahmed Khizer Khan is the President & CEO of Burj Bank Limited. Prior to this position, he served as Chief Operating Officer of ICD. He was the Chief Executive of Barclays Global Retail and Commercial Banking, UAE from 2006 to 2010 and was associated with Citigroup from 1997 to 2006 in various senior level assignments including Country Business Manager, Pakistan
and Managing Director Operations and Technology, Central Europe. He did his MBA from Rutgers University, Newark, New Jersey and his Bachelors in Economics from Bucknell
University, Lewisburg, Pennsylvania, USA.