EXECUTIVE SUMMARY

Consumer loan is an established financial product across the globe, particularly in mature economies, where it constitutes a significant portion of banks lending portfolios. In the Pakistani banking sector, however, the evolution of the consumer financing portfolio is a more recent phenomenon, as banks have traditionally focused on lending to the corporate sector and public sector entities. While two prominent foreign banks took the lead in introducing credit cards in the banking sector in the mid- !"s, their outreach was limited to the top-tier of salaried customers and businessmen.

#ver the last $ years, Pakistan witnessed a phenomenal growth of consumer banking. %his unprecedented development has followed privati&ation of nationali&ed banks, banking reforms brought about by the 'tate (ank of Pakistan and an increasingly marketing-oriented approach primarily aimed by banks at a large urban consumer base. (e they large or small bank, multinational or local, each one of them is geared towards making its mark in an already competitive environment that is the outcome of consumer banking. )ultinational banks such as *(+ *),#, Citibank and 'tandard Chartered have the support of the knowledge base and funds of their foreign principals which made them first to introduce products, services and innovative technologies to their consumer base.

%his report discusses two types of consumer loans which can be split into two groupssecured and unsecured. 'ecured means that the loan provider takes ultimate control over an asset until the loan is paid out. .sually the item sub/ect to control by the loan provider is the asset purchased with the loan. %his is 0uite often the case with car or e0uipment loans. %he benefit of this type of loan is that because in the event of a default the loan provider can recover their costs from the secured asset

(anking sector '.W.#.% indicates that banking industry in Pakistan is very strong one but it still has to perform well in order to reach the level of banking industry in other countries like 'ingapore, China, )alaysia and Indonesia. %he ma/or drawbacks lie in the policy of the regulators like '2CP and '(P which have formed policies that hinder the growth of consumer banking. %he strengths of banking industries include large market si&e, abundant resources, an emerging middle class and * fibre optic backbone infrastructure up and running for Information %echnology enabled services. %he weakness of the industry lies in poor governance, poor services and incongruent policies. %here are many opportunities as well for the banking sector like #il and 3as resources4 %o be further e5plored, developed and distributed, Investment in Physical Infrastructure 6evelopment4 #pen to private sector to meet the growing demand in the areas of power, highways, ports, airports etc, Information %echnology4 ,elatively low cost manpower available with ample scope for investing in Information %echnology 2ducation, *griculture4 Productivity still behind production possibility frontier and re0uires technical and financial inputs. %here are threats as well for the banking industry which are 25ternal and 6omestic 6ebt burden is 0uite high relative to the capacity to service and need to be reduced to manageable levels, %a5-36P ratio is one of the lowest among the developing countries and resource mobili&ation effort has to be stepped up, and 7iscal deficits have been traditionally high and need to be gradually narrowed down.

Introduction
When one is working towards financial goals, how they borrow can be /ust as important as how they invest. %he right borrowing options can improve their savings, cash flow, and the ability to take advantage of personal opportunities. )any times, people e5perience financial crisis and during such times, there is a need to borrow money. 'uch crisis can be solved with the help of loans which are available in banks and other financial institution. %hese loans are known as consumer loans. Inflation is at a rise and basic commodities are beyond the reach of ordinary people. 2ven middle-income to upper-middle income groups are struggling with financial difficulties which are mounting day by day. Inflation is not the only triggering factor responsible for financial crisis- financial disaster occurs when a persons e5penses become greater than his income. Consumer loans can help relieve the debt if they are used properly. Whether its your dream car or home improvements, fund a holiday, or you are yearning to buy a new laptop, need financial assistance with marriage related e5penses or you need money to finance higher education, Consumer loans can give you the purchasing power you need through a variety of consumer loan options. #ther types of loans like car loans, home loans and other loans for business and are limited to what they offer the loan for. Consumer loan can be used for anything or any personal needs of a consumer. 6ifferent banks offer different products which tailor the si&e and terms of your loans to meet your specific needs. %he most attractive aspect of Consumer loans is that, loans are granted a 0uick approval so that customers get the cash they need right away. In addition to fast processing, minimum documentation is re0uired 9necessary for verification of credentials and past borrowing activities: and attractive interest rates are offered to facilitate the customer 9interest rates vary with different banks:.

Types of Consumer Loans:

Consumer loans can also be split into two groups- secured and unsecured. 'ecured means that the loan provider takes ultimate control over an asset until the loan is paid out. .sually the item sub/ect to control by the loan provider is the asset purchased with the loan. %his is 0uite often the case with car or e0uipment loans. %he benefit of this type of loan is that because in the event of a default the loan provider can recover their costs from the secured asset. %wo types of loans are discussed below4 Secured Loans: 'ecured loans have a longer repayment term with lower monthly payments. When compared to the unsecured loan, it is more cost-effective because of lower interest rates charged. <ou can apply by pledging assets such as your home, your vehicle, or other assets to back the loan. (ecause the lender=s risk is reduced, it is easier to get a secured loan.

Unsecured Loans:

.nsecured loans are the e5act opposite of secured loans. In this case, collateral does not back the money that you borrowed, so the interest rate is higher. In addition, since unsecured loans are riskier on the part of the lender, they conduct throughout check on your credit worthiness. .nsecured loan is a great alternative for people who don=t own any property and those who are not in a position to offer collateral. %he loan amount varies for different banks but lenders are usually wary of approving large amounts of money. In the case of default, the lender has no choice but to seek legal means in order to recover their investment.

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Ris s in!ol!ed for lenders and "orro#ers:

(orrower stands no chance of risk because loan approval is easy 9in genuine cases: and interest rates charged are lower. ?owever, risk involved for lenders is very high in case of unsecured loans because if the borrower vanishes altogether then there isnt any way of recovery. If the borrower refuses to pay off the loan then the case is taken to court and a settlement is made. (ut the chances of default are very low because only genuine people 0ualify the verification process and banks first priority is to focus on securing the loan and to analy&e the repaying capacity of borrower.

Industry analysis $%an in& Sector'

() S)*)+)T Analysis of "an in& industry

Stren&t,s @arge )arket 'i&e and attractive location for e5ports to 'outh *sia, Central *sia and )iddle 2ast. *bundance of Water ,esources, +atural 3as. 2asy 'ea Port, *irport Connections with 2urope, *sia and )iddle 2ast. * large emerging middle class with growing demand for consumer durables, autos, services 'elf-sufficiency in food production and a buoyant agriculture. Auantitative restrictions on imports have largely been removed and tariff rates being brought down to ma5imum rate of 8$B with average incidence of 1>-1$B. 7inancial 'ector is open to foreign investors is diversified and has been strengthened in the last three years. Capital markets offer a range of instruments for raising domestic finance. * fibre optic backbone infrastructure up and running for Information %echnology enabled services. $

*ea nesses Poor governance record in the nineties with serious adverse conse0uences for efficiency and e0uitable distribution of growth. 7ailed democratic regimes with fre0uent changes in government in the last decade have nurtured political uncertainty, discontinuity and inconsistency in policy implementation. @ingering dispute with the ?ubco and free&ing of foreign currency accounts in )ay 1!!C have shaken foreign investor confidence. Dey economic institutions have been in a state of financial and management disarray creating strains on public finances as well as banking system.. (ureaucratic procedures and enforcement of contracts are slow, time consuming and cumbersome encouraging lobbying and rent-seeking opportunities. Public service delivery of essential services is poor and inefficient and under investment has led to congestion, shortages and access limited to the privileged far. +on-governmental #rgani&ations 9+3#s: have not so far played a ma/or role in social development and )icro Credit allocation to the poor. +pportunities +il and -as resources: %o be further e5plored, developed and distributed. In!estment in .,ysical Infrastructure /e!elopment 4 #pen to private sector to meet the growing demand in the areas of power, highways, ports, airports etc. Information Tec,nolo&y: ,elatively low cost manpower available with ample scope for investing in Information %echnology 2ducation. A&riculture: Productivity still behind production possibility frontier and re0uires technical and financial inputs.

A&ro0"ased .rocessin& and Industries: ?ighly Competitive and oriented towards 25ports but still in state of infancy and need to be upscaled. Value added e1ports in te1tile sector 4 ?as plans to modernise its te5tile industry for capturing world market share and positioning in post )7* period through technology, marketing and design improvements and investment in machinery.

2inancial Sector: 6eepening to improve the mobili&ation and allocation of financial resources. E1ports in non0traditional commodities 4 7isheries, 3ems and /ewellery, 7ruits and Fegetables, Information %echnology, are still under utilised. .ri!ati3ation: Public 'ector assets worth G ;-> billion are available for sale to strategic investors including foreign investors. 4on0Resident .a istanis: #ffer a large and rich reservation of talent, skills and capital for /oint venture partnerships.

T,reats 25ternal and 6omestic 6ebt burden is 0uite high relative to the capacity to service and need to be reduced to manageable levels. %a5-36P ratio is one of the lowest among the developing countries and resource mobili&ation effort has to be stepped up. 7iscal deficits have been traditionally high and need to be gradually narrowed down. Public 'ector Corporations riddled with e5cess manpower, poor management and weak financial base have to be restructured and strengthened. Incidence of poverty has risen during the last decade and poverty targeted intervention need to be accelerated. 'tagnation in 6omestic and foreign investment during the last several years has increased and given rise to educated unemployment

?igh degree of centrali&ation had eroded provincial autonomy and local government capacity

5) 6ey players in "an in& industry are

%he consumers of the banks %he investors in the banking industry, both local and foreign %he potential regulatory institutions %he government of the particular country @arge multinational companies Central bank of the specific economy @evel of discount rate and interest rate

7) .eer -roup Analysis

%he Community ,einvestment *ct does not specify 0uantitative performance standards. Instead, e5aminers rely on performance conte5t data and a comparison to peer banks to assess an institutions performance. %he @arge (ank 25am Procedures, under the @ending %est, states that the e5aminer may consider using a peer bank comparison of an institutions lending performance if and when there are contiguous geographies within the institutions assessment with abnormally low penetration. %he purpose of the comparison is to determine if there is a lack of performance by the institution within a specific geography. %he 7ederal ,eserve is an e5cellent resource to assist in the development of a performance conte5t and a peer group. %o develop a peer group4 1. 6etermine the geography 8. @ook for institutions within the identified geography with a similar deposit market share ;. @ook for institutions with similar asset si&e

>. ,ead Performance 2valuations for institutions that have both a similar asset si&e and deposit market share within the identified geography. 9a: @ook for similar product mi5 9b: @ook for similar assessment area footprint $. *ggregate your peer groups reported loans based on the Public disclosure reports. * Peer (ank *nalysis can provide insight as to the following4 1. %he name 9and number: of lenders marketing within the identified geography. * Peer analysis could identify anomalies that might cause distortions such as dominant lenders that are not sub/ect to C,*. 8. @ack of penetration by similar situated institutions could indicate that there are similarities within the group that preclude them to service the area due to 9a: demographic characteristics, economic conditions, credit opportunities and lack of demand.- or 9b: institutions business strategies, capacities and constraints. ;. While weak in penetration, the analysis can identify the banks rank of market share and lending activity in comparison to other similar situated institutions .eer &roup analysis of 8a"i" metropolitian "an c,artered and %an al08a"i" #it, its peer &roup standard

9) 2actors +r Tri&&ers
)ost economic and financial analysts view the market for business loans in the Pak economy in a traditional supply and demand framework that takes into consideration the alternate ways to finance a business and various ways for those controlling capital to invest. * business I large or small I with a pro/ect it thinks will meet its profit re0uirements, considers internal and e5ternal funding sources. )any times, these businesses weigh borrowing money 9debt: against selling an ownership stake. %hose with money to invest I the current owners, friends of the current owners, banks, pension funds, hedge funds, trusts, mutual funds, etc. I e5amine the financial returns and risks on a loan, compare what one company offers against the offers of other firms, and e5amine alternatives to business loans such as consumer loans or government bonds. %his report analy&es the factors influencing the decision to finance for businesses in general and for small businesses in particular. /emand for Capital * business undertakes the pro/ects e5pected to most increase its value. It does this by proceeding with the pro/ects that have the greatest risk-ad/usted rate of return. * risky pro/ect should be anticipated on average to produce a greater yield than a riskless investment, such as Pak %reasury bonds, to compensate for the probability of a loss 9or less than e5pected profit:. When there are a large number of pro/ects that are e5pected to be profitable after ad/usting for risk, a company will desire to borrow more money than when it finds fewer pro/ects that are profitable after ad/usting for risk. *s the economy fluctuates, the supply and demand for loans changes. When the economy is growing rapidly, a typical company will find many more pro/ects that would be profitable than when the economy is growing slowly or even shrinking. Changes in specific business sectors increase or decrease the supply and demand for capital in those business sectors. *ll economic sectors 9consumers, businesses, and government: at times compete with 1"

each other to borrow for various purposes. (usinesses borrow long term to finance plant and e0uipment and short term to obtain working capital to meet payrolls or finance inventory. (usiness borrowing is sensitive to interest rates, other loan terms 9such as the life of the loan, any collateral, and any other restrictions:, and the economic outlook. Interest rates matter because the cost of borrowing can be critical in determining whether a pro/ect will be profitable. %he economic outlook is more important for long-term borrowing because of its impact on a pro/ects profitability. 7re0ue rates and a deteriorating economic outlook can impact some sectors, such as new home construction, more than others, such as fast food. #ther factors influencing business demand are the cost of investment goods, the durability of the goods, and ta5 treatment of investments. * businesss alternatives to finance a pro/ect may depend in part on its si&e. (anks, other corporations, individuals, and governments make loans. )any of these lenders have minimum and ma5imum si&e loans that they will make. 'ome loans could be too small for a large lender to process and service. 'ome lenders have application or processing fees that could make borrowing small amounts uneconomical. %hese concerns are one reason that the 'mall (usiness *dministration 9'(*: created the microloan program. @arge loans could e5ceed the financial capacity or legal limits on lending. 7irms can sell bonds to the public 9in some cases by private placement:. %he advantage to those who purchase bonds is that, unlike many business loans, they can be sold in the secondary market. 7or some companies there is a ready, li0uid market for bonds. %he disadvantage of bonds is that they have high fi5ed costs- as a result, bond issues typically are for tens of millions of dollars. %his si&e makes it uneconomical for small businesses to issue bonds. Consumers and governments compete with businesses to borrow money. Consumers fre0uently borrow to purchase homes and consumer durables such as cars and large home appliances.1 Consumers also borrow to meet short term needs or shortfalls in income. In general, household income is the largest determinant of consumer borrowing. #ther factors that influence the demand for consumer loans include fluctuations in income, seasonal factors, interest rates, and e5pectations about the future. 3overnments 9federal, state, local, and foreign: borrow to allow spending to e5ceed revenues. %he federal government is relatively insensitive to changes in interest rates. 'tate and local governments, especially those re0uired to balance their budgets, can be sensitive to

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interest rates. 7oreign governments are sensitive to the inflation, interest, and e5change rates. Supply of Capital %he same sectors I individuals, companies, or governments I that borrow also lend funds. 'ometimes, this is done to take advantage of differences in interest rates, and in other cases timing differences are important. In general, the motivation to save depends on current interest rates, current and e5pected future inflation, and the timing of future income and e5penditures. 'ometimes, financial intermediaries like banks borrow money for the purpose of lending to others. 7or e5ample, one business model used by banks is to offer the 7ederal 6eposit Insurance Corporations guarantee to collect ine5pensive, relatively small deposits that are then combined into much larger loans.. /e"t and E:uity *n alternative to borrowing to finance pro/ects is to find investors to purchase ownership shares or e0uity. %he '(*s 'mall (usiness Investment Company 9'(IC: program is designed to stimulate private e0uity investments and long-term loans to small businesses. %here are numerous differences between debt and e0uity. %hose who hold debt are contractually entitled to specified interest payments for a specified time period. %he principal is repaid according to the loan agreement. If a company fails to make its payments, lenders can force it into bankruptcy and sei&e the companys assets to pay off the loan. 'ometimes lenders re0uire collateral to secure the debt. * company might set aside money in a sinking fund that is pledged to pay the interest andJorase in interest principal. @enders to small businesses sometimes re0uire an '(* H9a: or $"> guarantee to reduce the loans risk to a level that is acceptable. C %he '(* seeks, but does not re0uire, to have the business owners pledge real estate or other assets as collateral. ! %he '(* re0uires holders of at least 8"B of the ownership of a company to personally guarantee the loan. ?olders of common stock 9usually /ust called stockholders: have no claim on a specific amount of money. %hey are entitled to a share of profits 9usually called

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dividends:, but management may decide to retain the profits so that the firm can take advantage of a good opportunity. )icrosofts offer to purchase <ahoo is a case in point. )icrosoft will use some of its retained earnings and borrow the rest. 'hareholders unhappy with this decision have little recourse unless they can convince the board of directors to change its policy. 'ome companies issue preferred stock, which combines some characteristics of debt and e0uity. Preferred stock promises to pay a certain dividend- it has a lower claim on company revenues than bonds, but a higher claim than common stock. Preferred stockholders cannot force a firm into bankruptcy for failure to pay dividends, but common stockholders cannot receive a dividend unless the preferred stockholders are paid. @astly, in the Pakistan, business interest payments are ta5 deductible. Corporate profits 9from which dividends are paid: are sub/ect to corporate income ta5es.

;) Trend in consumer Loans mar et in .a istan

,apid growth in the consumer loans portfolio of the banking sector in recent years has generated an ensuing debate, mostly critical of its alleged role in inducing consumption-led growth in the economy. %he general perception is that consumer finance has created problems for the less financially literate customers. %his chapter aims to e5plore some of these perceptions and present data and evidence in perspective, while taking into account the high sensitivity of these loans to increasing interest rate dynamics. +otably, the household sector in Pakistan is underleveraged by global standards, and emergent risks are well-managed by the banking sector. Consumer finance is an established financial product across the globe, particularly in mature economies, where it constitutes a significant portion of banks lending portfolios. In the Pakistani banking sector, however, the evolution of the consumer financing portfolio is a more recent phenomenon, as banks have traditionally focused on lending to the corporate sector and public sector entities. While two prominent foreign banks took the lead in introducing credit cards in the banking sector in the mid- !"s, their outreach was limited to the top-tier of salaried

1;

customers and businessmen. #ver the last $ years, Pakistan witnessed a phenomenal growth of consumer banking. %his unprecedented development has followed privati&ation of nationali&ed banks, banking reforms brought about by the 'tate (ank of Pakistan and an increasingly marketing-oriented approach primarily aimed by banks at a large urban consumer base. (e they large or small bank, multinational or local, each one of them is geared towards making its mark in an already competitive environment that is the outcome of consumer banking. )ultinational banks such as *(+ *),#, Citibank and 'tandard Chartered have the support of the knowledge base and funds of their foreign principals which made them first to introduce products, services and innovative technologies to their consumer base. ?ot on the heels were the newly privati&ed banks, .(@, ?(@ and )C( which have embarked in consumer financing activities in not /ust big cities but smaller ones too, by virtue of their huge branch network. In doing so, they have generated huge volumes of business while at the same time driving down the prices of the products they offer. 7or instance, in 8""8, ?(@s consumer banking portfolio was worth less than a billion rupees. (y the end of 8"">, it is worth ,s. 1H billion. 'imilarly, since 8""; when it was privati&ed, .(@ has launched 18 to 1> new products and according to its 6eputy Chief 25ecutive ).*.)annan, each one of them has been a market leader on month-to-month ac0uisition volume. *nd where the local banks such as 'oneri, *skari and .nion lack in technology, they make up by offering similar services at a much lower costs in our urban centers. While the foreign banks have played the pipers role when it comes to introducing new products, they have targeted the same segment which may be one of their limitations in this area. #n the other hand, industry e5perts predict that the real growth will come from local giants such as the .(@, ?(@ and )C( which have the necessary e5perience and knowledge of customi&ing products to specific local preferences. 2mulating the e5perience of various foreign banks who had a head-start in this area, domestic private banks have e5hibited remarkable adeptness in adopting new procedures for credit risk assessment, setting up the re0uisite policy and collections units, and upgrading the scope of their I% based systems. In doing so, they successfully

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introduced several innovative products for the individual consumer segment. sufficient li0uid collateral, responded well to these initiatives.

#n the

demand side, the consumer, who previously did not have access to bank credit without

* combination of factors are responsible for the widespread popularity of consumer finance in recent years4 the financial liberali&ation process over the last decade or so, has led to the creation of a banking system which is largely owned and operated by the private sector, and is free to allocate resources in response to the demands of a market based mechanism. 'econdly, the influ5 of li0uidity in the banking sector since 7<"8 motivated banks to diversify and e5pand their earnings base by venturing into previously untapped areas, and third, the easy monetary policy stance of the central bank from 7<"8 to 7<"$ provided eligible customers with financing options at historically low rates to meet their consumption demand. In this backdrop, consumer finance has emerged as one of the most promising asset products for banks. Providing access to purchasing power to the middle-class consumer has been the most significant achievement of this product class. +ot only have people been able to raise their standard of living by purchasing various consumption goods which were previously treated as lu5uries in reach of only a few, demand for these goods has also led the manufacturing sector to e5pand its capacity, such that both backward and forward linkages have contributed to the e5pansion in economic activities. (anks auto loans product and loans for consumer durables, for instance, have been instrumental in this aspect. %hough still small in proportion, the rising demand for mortgage finance reflects the individual consumers need and financial capacity, to ac0uire private ownership of housing units. ?ence in promoting their consumer

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financing products, banks have played their due role in promoting economic development in the country. (anks consumer finance portfolio has grown at a rapid pace over the last four years or so, and its share in overall credit of the banking system had risen to 1;.C percent by end C<"H from virtually negligible levels, before declining to 18." percent by the end of Kune C<"C 97igure $.1:, constituting ;.E percent of the 36P 97igure $.8:. (anks now offer a wide range of products under the consumer finance umbrella, such as personal loans, auto loans, credit cards and mortgage finance.

+otably, growth in this particular asset class has tapered off since the advent of aggressive monetary tightening by the central bank in C<"H and C<"C, and emerging pressures on disposable income of the households due to the rising inflation. %he contribution of consumer finance to 36P has sharply increased from 1.$B to >.$B from 7<"; to 7<"$. %his has happened mainly due to increase in awareness among consumers about consumer finance products. 7ew other factors triggering this increase during this period have been the monetary policy of '(P and the improvement in image of consumer banks offering greater variety of products to consumers.

While all categories of consumer finance have grown substantially since the inception of this product, the most significant increase has been observed in personal loans, which are generally obtained for meeting different types of consumption needs. While this particular form of financing was available for bank customers even before the formal launch of consumer finance products, these were generally e5tended by banks

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on a fully secured basis. 2ven now, Personal loans e5tended beyond the specified limits, are fully collaterali&ed. +otwithstanding these developments, a few initiatives are still crucially needed for maintaining the stability of the consumer finance portfolio in coming years4 L With the growing e5posure against

consumer finance, banks would need to implement specific credit-scoring models. %hese can be based on the information derived from credit history databases, such as the turnaround time of monthly repayments, level of income and type of debt, length of credit relationship, in addition to other key pieces of information on social and demographic factors which help in establishing borrower profiles. %he model will help banks in ob/ectively identifying the credit worthiness of a borrower and the likely credit behavior. ?owever, for building an effective credit scoring model, the e5isting databases on the consumers credit history would need significant enhancementsL %he prevailing regime for enforcement of security li0uidation and collection of debts needs to be rationali&ed in terms of effectiveness and fairness to both banks as well as consumersL Considering the low level of financial literacy of the average consumer, mainly due

to the low level of awareness and the prevailing literacy rate in the country, banks would need to review the transparency of the pricing mechanism, and offer a choice between fi5ed and floating rates to the customers, while informing them of the pros and cons associated with each option. 'uch initiatives will also help in improving the ethical standards of banks dealing with their customers.

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<) 2UTURE +UTL++6

Consumer banking which is one of the fastest growing sectors of Pakistan (anking Industry is also now ma/or interest point for the banks. Initially the consumer banking sector was only focused by the foreign banks but its efficiency M profitability attracted others to come towards this business but still the ma/or share of consumer banking in Pakistan is in the hands of foreign banks. In a generic sense, institutional arrangements that provide consumers with financing support to enhance their consumption and as a result thereof, improve their standards of living should fall within the broad definition of consumer finance. 7or the past $" years commercial banks in Pakistan had completely ignored consumer financing as an activity. Consumer banking is a huge industry with great profits massive potential for improving economic conditions. (ut the banking sector has to care more for its subscribers rather than solely about itself. It needs to offer itself. It needs to offer better services at better terms and needs to inform the consumer completely and fully about the services. *ccording to an analysis, credit cards loans have increased from ,s;;.$;C billion during first of last calendar year to ,s>8.C88 billion during first half of current calendar year. 3rowth in auto loans has not been less impressive. It registered an increase of appro5imately ,sC." billion from ,'!H.HHH billion to ,s1"$.>>> billion during the corresponding period of growth of credit cards and personal loans. ?ousing loans have also registered an increase of appro5imately ,s11." billion. When all is said and done, banks still have to concentrate on continuous product development to retain their customers. %he logic is simple4 While advertising helps to build the image, it is the product that sustains that particular image. (anks also need to remember that while advertising works big time to attract both old and new customers, word-of-mouth remains the most effective way of communication for their products and offerings. 'o while big names continue to spend their huge advertising budget to promote their products, they also face competition from smaller banks 9with less advertising budget: whose terms and conditions may turn out to be more attractive especially for consumers with less money. *t the end of the day, however, it is the 0uality of service and 0uick turnaround time that will make the consumer an ardent customer of any banks 1C

products and services. It has been nearly five years since banks started emphasi&ing on consumer financing and although ma/ority of our population do not have the means to cash in on this development, there are many and especially the rising middle class who have started utili&ing their services for improving their lifestyle. Currently, the default rate is low. 7or instance, in the auto-financing sector, the recovery rate is around !HB and even if the customer is unable to pay up, with a mortgage the bank can always foreclose ones property. 'ome industry e5perts, however, say that the real test of default will come once the products started ageing and people will start getting tired of long loan repayments. +ow what does the future hold for consumer financingN ?ave the banks done enough homework to create awareness about their products through right strategiesN 'ome top notch banks continue to hire professionals who have worked laboriously on brand development and building identities for their products. *nd to a great e5tent they have succeeded, although the sky remains the limit when it comes to e5ploring the full potential of consumer banking because a large portion of urban Pakistan still remains untapped. *ggressive marketing along with an effective and innovative mi5 of *%@ and (%@ has to continue at an impressive enough pace. %he best, however, is yet to come.

Recommendations L 6iversify the portfolio L Introduction of new productsJservices in the market L ?ire new management L 3ive importance to all customers L Improve standard of banking L 'tart advertisement as soon as possible

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RE2RE4CES:
http4JJwww.ishrathusain.iba.edu.pkJspeechesJeconomic)anagementPoliciesJ8""1J)akin gOpakistanObankable.pdf

www.sbp.org.pk

http4JJwww.scribd.comJdocJ1!;C;$;$J+eed-and-'cope-of-Consumer-(anking-inPakistan8

http4JJwww.docstoc.comJdocsJ1H>>;>"EJConsumer-(anking

http4JJwww.map.org.pkJreviewJ"8"$Jcoverstory.htm

www.consumerbankingpk.com

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