Concentrating on trade finance - An interview with Husain Lawai, President & CEO, Summit Bank

Juggling with the varied portfolio of Arif Habib Bank, Atlas Bank and My Bank, Lawai is busy reorganising and restructuring the entity he runs. Sharing his thoughts with BR Research, Lawai discusses his planned business niche, the number of branches he eyes, and the strategies he intends to adopt to stand out from the rest.
BR Research: Small banks are finding it hard to stay afloat. What in your view should be the small banks' strategy to show good presence?
Husain Lawai: Each bank has to have its own business strategy. In the last 8 to 10 years, small banks initially tried to create specializations like Arif Habib and JS Bank, they wanted to focus on the capital market, but unfortunately, many other banks were not clear about their plans and were confused.
The second mistake that the small banks committed was that they relied on interbank to fund their asset acquisition. And the third mistake was that they never kept an eye on the cost of operations, because unless you keep an eye on your operational costs, you can never be successful.
BRR: What are your plans regarding Summit?
HL: When we acquired the bank, we had a very clear mission in our mind as to what we want to do. We cannot behave and do the business like the big banks; there is no competition and match between us and them. Primarily our focus is on trade finance, but if anything else comes out of the relationship, like consumer banking, investment banking, advisory etc, we will do it.
We offer better rates of return to the society segment that lives around our branch network, as a result our core deposit have increased to Rs33 billion from Rs6-7 billion when we took over the bank. Similarly, when I joined the bank, there were 12 people per branch; there was no need for such staff, and you do not need more than 5 persons for a branch.
BRR: Since there are other medium sized banks that have larger presence in trade finance, don't you think there is a need to create a niche?
HL: I believe there is still a lot of room in the trade finance business. Secondly, the large banks have the inherent disadvantage of the management layer that takes 10~12 weeks in the entire procedure. Our advantage on which we pride ourselves is that we turn the proposal around in one week's time at the maximum. So, time is our niche.
We have a defined strategy. We have listed a number of customers, and the list is circulated to the branch managers about whom to contact and whom not to, so it is like a pre-approved list which saves processing time. The approval of credit amounts is obviously not pre-approved; we follow the normal procedures in this regard.
BRR: Would you try to create a niche in the capital market business?
HL: We have to diversify our portfolio; we cannot solely rely on one sector. It is our strategy that we will not have more than 20 percent exposure in one sector. When I took this portfolio, the capital market share was 80 percent, so we are gradually reducing it to the desired level of 20 percent.
BRR: Do you think that the 80 branches you have at present are enough or you would like to expand the network?
HL: By virtue of acquiring My Bank, we will have 160 branches by the end of next month. Next year, we plan to relocate 26 branches to reduce duplication and ensure presence in other areas. The year after, we will be opening 50 new branches, because we have to have at least 250 branches by then.
BRR: Given that all the three banks that form Summit had similar structure and similar problems - what was the idea behind the merger? What were the synergies in combining three horizontal entities?
HL: We initially desired to buy RBS but the SWOT analysis told us that it had a couple of very serious challenges; it was not our cup of tea.
The banks we acquired were available and the major charm was their branch network and stable core deposits. Other parameters were the deposit mix and the cost of funds.
We were not entirely happy with the deposit mix of Atlas Bank but its good SME portfolio was very attractive for us. The amount was good, but we never realised that they have such a serious problem in SMEs as well, we realised it subsequent to the takeover. So the programme-based consumer lending model did not work.
I believe that the customer is not that bad except for a few black sheep. If you engage with them well, it will work, we have been very successful in the past three months and our recovery rate has gone up.
BRR: How did you deal with the challenges of merging different cultures and the employees' behaviour, technological changes etc?
HL: Merging is no doubt a very challenging exercise, but I had had the experience of mergers before which I applied here. We formed various core teams consisting of all the three banks; they were assigned with the job to choose one technological system that will suit the bank best. Then we studied the HR policy and the operational side of things, to come with a strategy that is suitable for the bank.
We took the staff into confidence and brought about the changes gradually. That experience has been very rewarding; we did not see any glitches in implementing whatever changes we wanted to.
BRR: What is the present state of NPLs?
HL: We have provided for about 65 percent of all the NPLs. I expect some more increase in Atlas' NPLs; I am ok with Summit and My Bank. We have a separate department to deal with the NPL issues, but our judicial system takes very long for the cases to settle, so we have to look at case to case while analyzing the NPLs.
BRR: What is your combined cost of funds and what is your target?
HL: After the merger of all the three banks, it would be around 8.5 percent. Bringing it down is not an easy task and will take some time. When you open a branch, it takes at least two years to attract and retain the customers and to attain loyalty. Our strategy will be based on building long term relationships and we aim to bring the cost of funds down to 7.5 percent gradually.
I cannot disclose the strategy right now, but I can assure you that it will really create ripples in the market. Other than the commission and fee income, we will also focus on our debit card business, we have started distributing this but we will announce a major initiative in this segment soon. We will offer 5 percent cash back on every purchase; no other bank is doing that.
BRR: What is your view on the NPLs of the overall industry?
HL: There are three problems in this area. We, in Pakistan want to keep the problem to ourselves. If the global banks detect a problem account, they just pick it and resolve it. But our legal system is so pathetic that we have to keep those bad loans on our books for decades.
Second reason is that we don't have good bankruptcy laws; otherwise we could take the companies and declare them bankrupt. Finally, our economy is going through a lean patch, unless that bad patch is over, the problem will persist.
BRR: Do you have plans to venture into more M&A activities considering that a few banks are still out there to be merged or acquired?
HL: We may look at some bank with 100 odd branches which can complete our acquisition.
BRR: What is your view on the ongoing debate of CAR being a better measure than the MCR?
HL: My view is that we can have some better criteria than the existing ones. The State Bank should put its foot down so that the banks act like banks. They have to come with some sort of solution to it.
BRR: Are you eying to tap the agri sector?
HL: We are doing our research on agri business financing. I have assigned the task to my team and hopefully we will come up with something on this.
BRR: What are your plans for the m-banking and branchless banking given that these are tipped to be the future?
HL: We are working on a few products and some deals with the telcos are in the pipeline too. But unless we are a merged entity, I cannot say much on this.
BRR: How do you see mobile banking transforming the banking experience in the next five to ten years?
HL: The secret of telcos success was that they were very user friendly; this is why they have managed to tap such a huge market. Secondly, they made it comparatively cheaper than the other alternative that is the landline. We are trying to do the same thing, but human resource is the problem. That is the biggest impediment in the way.
Quality of education at the universities is also a problem, with the exception of three to four institutes, others are not procuring quality products, the right attitude is not there, which means added pressure on their training. There is a need to eradicate the disconnect between the industry and the educational institutions.
Profile: Husain Lawai
Husain Lawai started his banking career in 1971 with the Muslim Commercial Bank, after which, he was involved in senior positions at various local banks and international financial institutions.
Currently sitting as the President and CEO, Summit Bank Limited, Lawai has been a board member at several notable local and international organisations. He's particularly fond of sports and has several regional and corporate-level tournaments to his credit.