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SECTION : B DATE: 20th November, 2013


Banking sector is a vital part of any economy and without its proper examined rules and regulations, an economy won't be able to carry out its financial duties to the nation. However, remaining within the boundary of the topic that is assigned to us -

Consumer Banking: A Tool For Poverty Reduction and Socio-Economic Development - we will be only discussing the topic in context to our own country
Pakistan. While judging the background and current system of our banking sector, we have seen huge amount of improvements in terms of deposits, loans and management system of these organizations. Nevertheless, without proper macroeconomic stability or development, banks have to face some tough situations. What is a bank? A bank is a financial institute that bring both savers and borrowers of an economy to a common platform where both can work with a common goal or interest. Basically, a bank is an institute or an intermediary that accepts deposits and lend it to other parties on behalf of the savers, to carry out their personal or business activities for a prescribed time. State Bank of Pakistan is the first bank that was established after the partition and formation of Pakistan. All the rules and regulations are designed, regulated and executed through this bank. Consumer Banking Consumer banking forms when the bank has a direct relation with its customers. No other party like agency or corporate banks are involved in this chain. It means that at time of need consumers have the opportunity to directly access the bank. There are a number of banking services and commodities that are offered by the consumer banks, as mentioned below: Savings Transactional Accounts Personal Loans Facility Debit & Credit Cards

The term is widely used to differentiate the bank from other types or categories of banks like investment bank, development bank, saving bank and so on. However, at several occasions or it is almost widely known as a division or department of bank that is solely made for consumers.

Consumer Banking: A Tool For Poverty Reduction and Socio-Economic Development

There are a number of factors that affect the lending and borrowing rate in Pakistan. Since, the Pakistan's economy is struggling hard for its survival at macroeconomic level, the borrowers and lenders have to make a wise decision every time for better investment opportunities and high return. With the help of Pakistan Banking Reforms in 1990, the banking sector of Pakistan was turned into an efficient, sound and strong banking sector. With better interest rate policies, lending facility, easy access to financial markets and better knowledge about the services and products offered by banks; customers are in a position to turn the other way around. With the help of given information, customers are in a better position to make a strong and powerful decisions for their investment and future investing areas. Here are some factors that goes in favor of the consumer banking: Loan and Advances For instance, imagine that you an individual that is looking to get Car Financing loan from a bank. Definitely, you would go for your savings that you have made for your future, if they are enough for you then you would simply buy they are with your own savings. However, there are wide number of people that won' go for this option as it affects their financial position a lot. Where would they get the cash from? With proper information about the interest rates or banks near their areas, they would approach a bank for this purpose. What to go for bank? There are number of services that are offered by banks and one of the best service is that you get loans and advances on easy terms and conditions. With immediate access to cash from their depositors (in case of bank), they would provide you the loan and in excess they would also charge a premium on the principle amount lent to you. This premium charged on your principle is called Interest Rate. Why would I have to pay an interest on the amount? This is because that the person who is lending you the money would also like to get some benefit out go it. The banking after keeping a certain proportion of interest for themselves would pay the saver as well. This in results, create a balanced and stabilized money flow in the market. The savers are saving for their future consumption and you as being a borrower has increased your current consumption. This is one of the reason why banks are providing better loan facility as they want to eliminate the inequality of rich and poor in the market. With the savers lent money the borrower is fulfilling his/her needs to increase their current consumption.

Lease Rental Receivables Residual value Minimum Lease Finance Charges Present Value of Minimum Value

KASB Bank Limited 2012 2011 (in Rupees '000) (in Rupees '000) One Year More Total One Year More Total than 1 than 1 Year less Year less than 5 than 5 Years Years 677,689 218,974 893,663 661,070 220,214 881,284 58,841 763,530 (84,353) 69,177 114,578 330,552 (27,249) 303,303 200,419 1,049,082 (111,602) 982,480 92,875 753,945 (87,502) 666,443 76,842 297,056 (24.427) 272,629 169,717 1,051,001 (111,929) 939,072

The table above shows that large number of individuals have gone through leasing and financing opportunity to accommodate their consumption. Leasing helps in saving a large portion, while you are only required to pay a proportion of the principle amount to the bank. Banks services are fully trustable and they do have a large affect on your buying and selling power. Services and Technology With the need for better services and security for the consumers, the technology needs to be upgraded with the passage of time. Banks felt it vital part of their services, they incorporated better technological facilities for their customers. For instance, with the increase of security and possession threats for the consumers, banks invented or incorporated technology that helps in the process of making their transactions safe and sound. Need for security and safety gave birth to automated machines and safe transactional instruments like debit and credit cards. Debit card is used to withdraw the cash from your personal cards. While credits cards are small amount of loans that one lend from the bank. Credit cards were invented to grant small loans to individuals or working people who are in a condition to repay their loans back. Banks after sufficient credit check

of the consumers grant loans so that they can increase their living standard. Again this money are a source form the savers saving and they are returned with a premium amount of interest charged over it. Frequent Deposits by Savers Let's suppose that you have already some deposits in your bank and yet you have sold some property and want to invest that money again in the bank. As the savers increases their frequent deposit ratio with their bank, the bank would be in a condition to carry out more loans in the market. This means that they would provide more loans to the individuals. With the more cash injected in the market, individuals would get more loans with lower rate of interested charged by the intermediary. Deposits Fixed Deposit Savings Deposits Current Accounts Margin Deposits KASB Bank Limited Variance 2012 (in Rupees '000) -33.80% 13,984,688 -2.37% 17,473,195 39.10% 29,471,973 -28.44% 401,932 61,331,788 2011 (in Rupees '000) 21,124,548 17,898,212 21,189,383 561,696 60,864,839

Standard Chartered Bank (Pakistan) Limited Variance 2012 2011 (in Rupees '000) (in Rupees '000) Fixed Deposits -17.05% 31,200,653 37,616,096 Savings Deposits 23.01% 127,476,619 103,630,972 Current Accounts 14.45% 106,288,779 92,865,197 Margin Accounts -31.18% 381,728 559,710 158,822,064 200,671,975 Deposits In the above given tables of two banks - KASB Bank Limited and Standard Chartered Bank (Pakistan) Limited - we have taken the data from their financial statements. For Current Accounts of KASB Bank Limited, we can see that there is a positive change of 39.10% from the previous year. This shows that consumers have gone through more savings in their bank accounts. While for Saving Deposits of Standard Chartered Bank (Pakistan) Limited, the consumers have gone towards more deposits in their saving account. Nevertheless, the current macroeconomic situation of the country isn't stable enough so we can see wide ups and downs in the data. It might also be possible that the services of the banks differ, as to increased competition in the market. These factors matter

allots when it comes to an individuals with their saving habits. The consumer would prefer that bank that would give the maximum result on their investment or savings. Advances and Loans KASB Bank Limited 2012 (in Rupees '000) 33,397,873 982,480 2,264,991 36,645,344 2011 (in Rupees '000) 32,190,161 939,072 1,034,749 34,163,982

Loans, Cash Credits, Running Finances, etc Net Investment in Financial Lease Bills discounted and Purchased In Pakistan Advance Gross Provision Against NonPerforming Loans & Advances Specific Person General For Consumers Advances - Net Provisions

(7,282,458) (8,057) 26,873,467

(5,844,770) (13,066) 28,306146

The above data from KASB Bank Limited's Financial Statement shows that they have made huge advances in 2012 then as compared to previous year's. However, the provision for non-performing loan is greater in 2012. For securing the advances bank charge interest on the principle amount charged on monthly basis. This is done to safeguard the interest of savers and their own reputation as level. Moreover, the level of risk also depends on the credibility of an individual. For example, is a person is lowly paid, then the chances are that that the loan lent to them would have higher interest rate as compared to other consumers. While, if the bank are sure about the loan repayment then they might reduce their interest rate a bit. The interest rate limit is ensured and regulated by the State Bank of Pakistan. They set the rules and regulations for the services such as interest rate to be charged on the loans and advances depending upon the individual character and his/her creditability report. Standard Chartered Bank (Pakistan) Limited Advances 2012 2011 (in Rupees '000) (in Rupees '000) Loans, Cash Credits, 143,632,574 137,201,988 Running Finances, etc in

Pakistan Bills Discounted and Purchased in Pakistan Advances Gross Provision for NonPerforming Advances Advances - Net 8,659,942 152,292,516 (24,461,922) 127,830,594 6,224,555 143,426,543 (21,989,417) 121,437,126

Same is the case for Standard Chartered Bank (Pakistan) Limited, but there is a difference between the figure. This is because that KASB Bank Limited is having more attractive terms and conditions and interest rate that the customers have preferred that bank. On the other hand, there marketing and financing activities has attracted the customers a lot. Socio-Economic Development With easy access to the loans and advancement facility from the banks, consumer can now upgrade their living standard. With the money that they lend from the market, they can start their own business or utilize that money for better earnings and productive activities. This means that more money will flow in the economy as there would be increase in money consumption and utilization. Due to this increase in consumption and productivity, the economy would see an upward trend that leads to better GDP forecast and real in terms. More purchases and investments would be made which would benefit overall at macroeconomic level. Results/Prove From the above mentioned points and facts and figures we have seen that the more bank involves in productive and lending activities, the poverty would reduce and socioeconomic development would gain boom. The bank internal efforts are also one of the major factor that decides the lending and borrowing activity in the market. In the overall scenario, we have seen that banking sector of Pakistan is growing its economy and the consumers are getting much benefit from it. an individual's personal saving is important for the economy as the more it could be save the more borrowing activities would take place in an economy.

http://www.kasb.com/sitedata/downloads/Bank/20130412095214259_Ann12.pdf http://www.standardchartered.com.pk/_documents/SCB-Annual-Report-2012-Final.pdf