BR Research recently sat down with Azhar Aslam, Head of Islamic Banking at Standard Chartered (SC) Sadiq. The conversation revolved around the bank's progress in Islamic Banking and the issues being faced by the industry. We also discuss the role of digitisation in SC's future strategy. Below are edited excerpts from the interview.
BR Research: How has the past year been for SC Saadiq and what developments have taken place in your portfolio?
Azhar Aslam: Last year was a good year for SC generally as well as for Saadiq. Despite the low interest rate environment, we managed to improve our profitability and post stable growth in 2016. Our focus is on the client in terms of providing Shariah compliant products and services. We leverage our international presence to help our clients find the ideal Shariah compliant solutions that meet their needs.
SC is the only foreign bank that has a full suite of products, for corporate banking, commercial banking, and retail banking available in Pakistan. Apart from deposits, credit cards, home finance, we have also launched finance against property for our business banking clients last year. On the corporate side again, we have a complete suite of products which includes transaction banking, trade, corporate finance, and capital markets.
The past year saw SC Saadiq issue the second sovereign FCY Sukuk for Government of Pakistan which was a landmark deal. Standard Chartered Saadiq is in the forefront of being a trusted advisor and a thought leader for sovereign issuances, including Government of Pakistan
BR: What new products is SC Saadiq currently thinking about?
AA: Both the central bank and the ministry have been showing interest in new product structures and solutions other than the Ijara Sukuk, since Sukuk requires underlying assets which sometimes is a challenge. Keeping this in view, SC Saadiq has taken the lead and come up with solutions which are not dependent on fixed assets. Pakistan is a very good market for Islamic banking.
Product innovation is the key to penetrating a market; SC Saadiq has focused on offering products which meet client needs in terms of features, pricing and delivery channels. This has ensured that SC Saadiq is recognized for product innovation - we are the only bank in Pakistan that has a Sharia Compliant Credit Card offering.
BR: What sort of assets are you focusing on creating and what has been the industry trend?
AA: We have created assets across all our three lines of businesses: retail, corporate and commercial banking. Then we have trade finance facilities in corporate and commercial space, corporate finance transactions, and term finance transactions for our clients. So all in all, all these three businesses have given us enough assets to grow our balance sheet in 2016. That's also partially true for the industry as a whole. The financing has grown better than the liabilities.
If you look at 2016 industry numbers, the profitability of Islamic banks has been flat because although there was an overall increase in income, there was a corresponding increase in expenses as well, due to which net profit before tax was more or less the same at the industry level as it was in 2015. Islamic banks need to have a window where they can place excess liquidity with the central bank if required.
BR: What size do you see the mortgage segment growing into in the coming years for Islamic banks?
AA: Our society is usually not very pro-borrowing when it comes to building a house. People tend to finance their homes through their own sources. However, due to high prices of land and construction coupled with record low interest rates, more people are opting for home financing. Due to its interest free nature, Islamic Banking is well-positioned to cater to this rising demand and satisfies their home financing in a Sharia compliant manner. We are close to touching Rs 200 million a month in terms of mortgage finance this year.
BR: Do you think there should be some kind of a product which gives the option to avail long-term fixed rate financing?
AA: We have a product which offers a fixed rate for the first three years for mortgage finance. We are looking at the possibility to launch another product which caters to hedging solutions, including profit and interest rate hedging options. We are an authorized dealer for conventional hedging solutions and progress is being made towards offering Sharia compliant hedging solutions.
BR: Please tell us about the future direction SC Saadiq will pursue in Pakistan.
AA: Pakistan continues to be a key market for the Standard Chartered Group. Recently, our Chairman visited Pakistan whose visit was preceded by our global CEO, Bill Winters, which shows the importance and the commitment of the group to this market.
Standard Chartered Pakistan has always provided thought leadership to the market especially on the digital front. We are one of the first banks to launch online banking platforms in Pakistan. It is an award winning platform, which has served as a model for other banks to follow. We were given the award of the Best digital Bank by Global Finance 2016 for Islamic Banking. In 2013, we were the first bank to introduce mobile banking app (Breeze, now called SC Mobile). It allowed clients for the first time to check balances, make transactions, transfer funds and locate ATMs through their Apple and Android Phones.
In 2015, we introduced the first of its kind digital branch in Pakistan - combining our international expertise in digital banking customised to provide the best in class services for the local market. In line with global trends where client preference is continuously shifting towards digital channels, Standard Chartered has employed an integrated multi-channel strategy investing heavily in the digital space. Saadiq is a differentiator for Standard Chartered on account of being the only international bank with full product suite across retail, corporate and commercial and our leading position on Sukuk league table.