'Industry needs trained human capital to support growth,' Head Islamic Banking, Standard Chartered

Azhar Aslam, Head of Islamic Banking, Standard Chartered Pakistan is a seasoned banker with over 20 years (ten years of dedicated Islamic banking) of foreign bank experience including international experience with Standard Chartered (SC) Singapore.

He is passionate about Islamic finance. He established Corporate Bank portfolio at Dubai Islamic Bank Pakistan with multiple revenue streams. In his current role as Head of Islamic Banking at SC in Pakistan, his emphasis has been to make Islamic business a key contributor.

<B>BR Research: Tell us about your experience in Standard Chartered Bank and the progress of Saadiq.</B>

<B>Azhar Aslam:</B>Standard Chartered started its Islamic banking business - Saadiq 12 years ago. I took over as head of Islamic banking January 2011. Our top line revenue CAGR has been north of 20 percent. We made Rs 3.6 billion in revenues in CY15; it was Rs 1.2 billion for CY10, which goes on to show that we tripled the business in five years. This growth phenomenon has been the case across all three business segments within Saadiq: Retail Banking, Corporate Banking and Commercial Banking. All three segments have been performing well over the years.

Today, we are around 16 percent of the top line revenue in terms of Saadiq's share within the bank. We have been gaining market share over the years through all the three business segments. Standard Chartered as a whole has 101 branches; out of these 10 are dedicated Islamic banking branches, while most of the remaining 91 branches also have Islamic banking services.

<B>BRR: Tell us about the Islamic banking market? Have there been any changes in its regulatory environment?</B>

<B>AA:</B> The market too has been growing in double digits. There has been a lot of development in terms of regulatory support since 2012. Recently, a local bank has established a subsidiary on the Islamic side, which is an indication of the fact that there is a business opportunity and all banks are looking to take a piece of it.

The regulatory environment has improved in the sense that there is a dedicated, first ever Deputy Governor at State Bank of Pakistan for Islamic banking. Mr Saeed Ahmad is a senior sponsor as also, which send a message to the market that the central bank looks at Islamic banking seriously. Having said that, a challenge associated to this, which is a good thing in the long run, is that the governance requirements of Islamic banking have increased manifolds in the last two years.

SBP have been working on Shariah Governance Framework, which was rolled out in July 2015. It is a very robust framework, which has required all banks - whether full-fledged Islamic banks or conventional banks with Islamic banking operations - to have Shariah boards. We have established a Shariah board in Standard Chartered Bank Pakistan, which consists not only of local scholars, but one very reputed international scholar - Sheikh Nizam Yaqoubi. We believe that by having well reputed International Scholar on our Shariah board brings value in terms of growth of the industry through innovation and migrating best practices from other markets.

We have done this in the past; in 2014, we provided solutions for the challenges borne by the government while structuring the international sovereign sukuk, which were approved by the Shariah board of SBP as well as the international investors.

<B>BRR: The asset side of Islamic banking was very weak in the initial years compared to the unprecedented growth of the liability side. Do you think that gap is now being filled?</B>

<B>AA:</B> In my view it's a journey; Things are better now than they were a few years ago. I wouldn't declare victory in terms of resolving the problem of liabilities being longer than the assets. However, this has been a challenge for not only Islamic banking but also the country's banking sector as a whole - the key reason for which is lack of sustainable economic growth. The long term solution to this challenge in the industry as a whole is for economic activity to take place in a way that would lead to productive asset deployment, and it has to be a combination of wholesale banking (corporate and commercial), and consumer banking.

Banking industry has been criticized for investing in government papers partly because of very limited opportunities. Having said that, we are very cautiously optimistic about growth in the asset side as a bank, including Islamic. We have seen some uptake recently; consumer financing has started to pick up in the last 12 months driven by low interest rate environment and the security and stability in the country. Taking the lead in terms of innovation, we have launched a three-year fixed mortgage on Islamic side earlier this year.

<B>BRR: How is your mortgage product doing?</B>

<B>AA:</B> It is going very well. In fact, it has started to takeoff, and we are looking forward to a sustainable business in the next few months. The initial results are very encouraging. We have a cautious approach in terms of risk, so we are bringing in more areas gradually into consumer banking. We don't want to be in a situation when there were challenges in terms of the risk profiles of most of the consumer banking portfolios of the asset side back in 2007-08.

<B>BRR: What about house finance?</B>

<B>AA:</B> Though property prices in some cities have increased significantly in the last year or so. We believe there is an opportunity to provide home finance across the country. We are moving ahead with a much focused approach; we have the proposition of employee banking in the bank where we offer a product suite to our corporate client, and home finance is part of that.

<B>BRR: What other segments you believe can attract asset deployment you talked about earlier?</B>

<B>AA:</B> While the car finance and home finance have their role, we need investment or quality asset booking in infrastructure, power projects, and capacity enhancements. The banking industry as a whole has tons of liquidity, which is a challenge also, because the pricing is driven by liquidity today, and not by risk. So there may be asset deployment taking place, but the revenue uptake will take some time.

<B>BRR: Banking penetration in Pakistan is very low. And then there are still some religious aspects that hinder the growth of Islamic banking. Is there a way to work on this issue?</B>

<B>AA:</B> Islamic banking has come a long way. It started in the 80s, and then it really took off in early 2000s. In my view, a lot has happened in terms of product development, Shariah governance framework, and the awareness campaign by SBP over the course of time. Those who really want to manage their finances through Islamic baking need to understand the product and the product flow to remove any fallacies. In a nutshell, Islamic banking is a journey; it is the obligation and responsibility of everyone in the chain to understand the product, and the steps and processes to completely accept Islamic banking.

<B>BRR: Is Islamic banking getting popular in non-Islamic countries?</B>

<B>AA:</B> Yes, it is. I can give you a few examples here. UK and Hong Kong governments issued sovereign sukuk; there are transactions happening in UK, Germany, Australia, and Singapore. There are two reasons behind the spread of Islamic banking worldwide: One is the awareness, and the second is the rise of ethical banking, which is very close to Islamic banking.

<B>BRR: Where around the world is Saadiq service available?</B>

<B>AA:</B> We have Saadiq services in Pakistan, Bangladesh, UAE, Bahrain, Malaysia, Indonesia and Kenya.

<B>BRR: What in your view the Islamic banking industry needs for growth?</B>

<B>AA:</B> Islamic baking is in evolution in Pakistan and other countries where it exists. It would be good for the long term growth of the industry in Pakistan to have interaction and exchange of view with other school of thought and Shariah advisers across the globe.

One area that the industry needs in the long run is human capital. Some very good work has started to take place in this domain in the last couple of years led by Mr Saeed Ahmad of SBP. Three centre of Islamic excellence are being set up in Karachi, Lahore and Peshawar. We have strategic partnership with LUMS. This will go a long way in supporting the growth of the industry in terms of theoretically trained human resource.