Naushaba Shahzad, (Acting) President & CEO First Women Bank Limited, has had a successful banking career history with FWBL; with diverse banking experience. During her career, she managed and headed the Risk Management Division, Financial Services Desk and Credit Portfolio of the Bank, including Syndicate Financing, Corporate Credit, SME and Consumer Financing. She is also a member of the Bank's various committees, including the Executive Committee and ALCO.
BR Research recently sat down with Naushaba, and discussed matters surrounding the bank's performance, its impressive turnaround and future plans. Below is an edited excerpt of the conversation.
BR Research: How has the First Women Bank Limited been able to cope up with the challenging environment of today, given its size and the scope?
Naushaba Shahzad: First of all, let me tell you that this is a very unique model introduced in Pakistan, it has great potential and much wider scope as its charter is focused on catering the financial needs of more than 50 percent of the population of the country i.e. women of Pakistan. This model has also been adopted by other countries of the world.
I am also pleased to share as the Bank is celebrating its 30th anniversary this year. This shows that despite all the internal and external challenges, it has managed to survive which in itself is a great achievement. Since the bank is expected to assume both the developmental and commercial roles, its performance should be evaluated on exclusively designed KPIs instead of being compared purely on commercial terms.
BRR: You mentioned that the Bank has now turned into profits, can you share what strategic steps did you take to make this happen?
NS: I am a firm believer that success of any institution entirely depends on formulating the right strategy, followed by timely execution. This of course would have been made possible only with the right kind of leadership having strong belief in the commercial viability of the model. It needs top leadership that is committed, dedicated and passionate enough to make things happen.
Since I have a long association with the bank therefore I am fully aware of its strengths and weaknesses; that gave me an edge to quickly come up with a most appropriate strategy and corrective action plan by focusing on business growth, product innovation, improving technological platform, Internet banking, 24×7 call center, strengthening of control environment, relocation of the branches to enhance brand image and visibility, quality improvement of management team to put the institution on the right track on war footing basis, in the shortest possible time and the results are for everyone to see.
When I took over the charge as acting CEO/President, the bank was running in losses in excess of Rs200 million. By taking right steps in the right direction, FWBL has recorded pre -tax profits of Rs160 million as of Sep 2019. Such remarkable performance also convinced our external rating agency to improve rating outlook from “negative" to “positive" based on just six months of performance.
How did we manage that you may ask? We did not ask for any grants from anyone. We have worked very hard as a team, and more importantly, have set the right direction. Meritocracy is my motto, and that is where a lot of difference can be made, and I have stood up to pressures from various corners. In the past, political pressure had resulted into bad financing, which explains our NPLs of Rs2 billion on a loan book of Rs10 billion.
Another area of improvement, apart from the obvious change in profits, is the compliance side. You are well aware of the strict regulatory environment that Pakistan faces under the FATF. We strengthened the control environment, and have not faced any penalties from the regulator in terms of compliance. When I assumed charge, the compliance issues were very critical where the previous regime had clearly conveyed to the SBP, its inability to comply. We were facing a possible scenario of our cards being blocked in case of non-compliance.
BRR: So how did you manage to comply with such stiff regulations in such a short span, when the previous regime had cited financial stress as reason to non-compliance?
NS: I would put it down to the determination of my team. The bank was non compliant to various critical regulatory requirements including EMV non compliant ATM cards, vulnerability of its data center, large number of pending biometric verifications of accounts, which was critical in view of FATF and AML/KYC challenges being faced and a number of other important issues.
We asked for a very short span to complete these challenging tasks, where we had to work for long hours, on war-footing. I had clarity in my mind and was determined not only to save the existing business but also fuel the growth with minimum disruptions. We managed to achieve all this within our limited resources, ensuring cost efficiencies. We had clarity that there would be no compromises on the regulatory front, as we could ill-afford penalties of any sort, given our financial position.
BRR: While the regulatory compliance is wonderful, the financial turnaround could not have happened without a clear change in how you managed your asset and liability books.
NS: There was definitely an opportunity in the market for the industry, as the interest rates were on rising trend. FWBL also capitalized on this opportunity, and rode the yield curve. In terms of assets, we did alter our strategy. We introduced new retail products, which have comparably higher margins.
We grew our revenues by 40 percent in 10 months of 2019, whereas the cost increase has been restricted to under 3 percent. Our ADR generally hovers around 65-70 percent, which is a healthy number. This is an institution that believes on extending credit, and not surviving merely on investing in government securities.
BRR: In a rising interest rate scenario, is there enough appetite for the retail products?
NS: By retail, we don't mean the conventional consumer banking products. Housing is a great initiative of current regime, FWBL has signed a MoU with Pakistan Mortgage Refinance Company, and where financing line of Rs300 million has been approved.
It is pertinent to mention here that SBP had imposed a cap on our consumer financing portfolio for quite some time, and we could not venture into any new consumer product except for offering salary loans.
By presenting a strong business case for growth of our retail banking, we managed to convince SBP and got the cap removed and now have a blanket approval to offer consumer products, beyond just the salary loans. Now we can easily venture into auto, housing or gold financing products. We are just waiting for the right time to enter the market.
BRR: Do you have any kind of consumer base for these products to achieve any level of scale?
NS: We have a significant number of customers under our salary loan category, who are largely government employees. This gives us an opportunity to cross sell other assets products to our tested and tried customers. Housing, for instance, will be a much large scale project, where women empowerment and low cost housing goes hand in hand.
The housing products would create asset ownership which can ultimately be offered as collateral for their business needs. We know that in our society, assets are majorly owned by men and non -availability of asset ownership is a major hindrance towards access to finance for women.
BRR: Has the size of the loan book also expanded during the year?
NS: FWBL has been a pioneer in SME lending with a staff skill set trained to handle and manage SME sector. The average loan size for small enterprises is Rs2-3 million, and the repayments have been much better in this category with manageable NPLs. Given the above strengths and to increase focus on the financing need of bank's niche market, we have tried to make a shift in the portfolio and product mix to align it towards SME sector, which is now a top priority of SBP and GoP.
BRR: How much of a challenge is there for a small sized bank to attract, retain and more importantly, train the human resource?
NS: Our third focus area alongside efficiency and regulatory compliance is human resource development. We have an experienced and committed human resource team that needs to be further trained and developed to keep them abreast with the rapidly evolving industry trends.
BRR: Has the liability side been a challenge, especially in terms of attracting the low cost deposits?
NS: If you look at our deposit book, the concentration risk used to be quite high, which could be detrimental for any bank, more so for a bank of our size. It is imperative for the stability of any financial institution to have a broad based smaller ticket retail deposits that are stickier in nature. We formulated a strategy for expanding the retail book with an aim to improve our CASA ratio.
The banking industry is evolving continuously, instead of customer coming to the bank; it is now the bank which needs to go to the customers' doorstep. For the first time in the history of FWBL, we have launched the BDO model to improve outreach to the customers.
This sales staff goes to the customer with the mobile devices and facilitates them at their doorstep to open the account. This would help the bank expand its customer base and retail deposit book, in the coming months.
BRR: What does your CASA look like at the moment?
NS: We have managed to improve our CASA ratio to a level of 66 percent, which is not bad for a bank of our size. Bringing more diversity in the liability book is one of our major focus, we have built our turnaround on broadening our liability book.
BRR: In terms of asset quality and the provisioning, have things improved from the previous year?
NS: Our coverage ratio has now improved to 80 percent, which stands aligned with the industry. The rising NPL trend has been arrested as well, with a focus on fast track recoveries. Our small ticket borrowers are not an NPL worry, as most of the NPLs have been on the corporate side. Our youth loan is one of the best performing in the market, with under one percent infection ratio.
BRR: Given your size and financial constraints, how do you keep up with the technological advancements?
NS: A strategic initiative has been taken to introduce internet banking solution to facilitate our customers through incurring minimal cost on the existing system. But I am aware of the challenges that if you do not step into digital banking soon, you will stand nowhere. We are in talks with various partners to start offering e-commerce, mobile banking and other innovative products to our customers.
We have planned to invest in one of the best systems in the market, because we see the bank as a going concern. With only 42 branches, we cannot cover the entire un-banked women population of the country, which means, we must have digital banking solutions for our services and products.
This is key to the achievement of the objectives under National Financial Inclusion Strategy of the Government of Pakistan. The ministry of Finance has been very supportive and has encouraged this initiative of the management.