THE SWOT’S FACED BY FOREIGN BANKS WORKING IN PAKISTAN; A COMPARITIVE

STUDY OF CITI BANK AND FAYSAL BANK LTD

A dissertation submitted in partial fulfillment of the requirements for the Degree of Master of Business Administration

by

Malka Khan Thebo

Department Of Management Science Faculty of Computer & Management Sciences

Isra University, Hyderabad

October 2009

THE SWOT’S FACED BY FOREIGN BANKS WORKING IN PAKISTAN; A COMPARITIVE

STUDY OF CITI BANK AND FAYSAL BANK LTD

by

Malka Khan Thebo

Examination Committee

Asst. Professor Najeeb Hassan Brohi (Supervisor) Assistant Professor

Prof.Dr. Muhammad Ayoob Shaikh(Co-Supervisor)

Professor of Management Sciences

Asst. Professor Qamaruddin Mahar (Co-Supervisor) Assistant Professor of Management Sciences

ACKNOWLEDGEMENTS

First of all, I reverently thank Almighty Allah who made me skillful

enough so that I can make some contributions to the huge understanding of

the world and who also awarded me the capability to complete the MBA

dissertation fruitfully which otherwise would have been unfeasible for me to

complete.

I am tremendously thankful to my supervisor Assistant Professor Mr.

Najeeb Brohi, Department of Management Sciences, Isra University

Hyderabad for his faithful attention, continuous suggestions, and

encouragement in compiling my research work. His creativity and logical

judgment were of large help during the whole writing of this dissertation.

I would like to convey the extraordinary and great thankfulness to

Assistant Professor Dr. Muhammad Ayoob Shaikh, Department of

Management Sciences, Isra University, for his wholehearted effort and

concern. With his precious advice, help and encouragement, I was able to

comply with this dissertation.

I would like to expand my gratitude to Assistant Professor Mr. Qamar-

udin-Mahar for his great support during the dissertation work.

I am grateful to Professor Dr. Gulham Hussain Siddiqui Director

Research, Extension and Advisory Services, as well as Professor Iqbal Bhatti

Dean Faculty of Computer and Management Sciences Isra University for

providing me their supervision and support and helping me in carrying out the

dissertation on time.

ABSTRACT

Banking is one of the most thin-skinned businesses all over the world.

Banks play very important role in the financial system / economy of a country

and Pakistan is no exception to this condition. Banks are guardian to the

assets of the general lots. The banking sector plays a significant role in a

modern world of money and economy and Banks also play a very positive

and vital role in the overall economic improvement of the country. With each

passing year various foreign banks enter in Pakistan and establish their

branches here showing the world a positive image of the Pakistani banking

sector growth and prosperity. I thoroughly examined the S.W.O.Ts faced by

foreign banks in Pakistan by conducting a comparative analysis of the two

selected banks i.e. Citi bank and Faysal bank limited. Since that time the

banking sector is affected by the global liquidity crisis going around the world.

Since from last 2 to 3 year, Pakistani banking sector is not performing well

many fluctuation and variation have been observed in the performance of

foreign banks and during this period various S.W.O.Ts are faced by them I

have tried to clarify that situation through my comparative analysis of the

sample banks i.e. Citi Bank and Faysal Bank Limited. Despite of all these

facts one of the worlds largest banking network i.e. Barclays bank came to

Pakistan in 2008 showing the world the strength of the Pakistani banking

sector to combat with any challenge.

ABBREVIATIONS

Abbreviations Term

AAM-------------------------------------------------------Advance Against Merchandise

ATM-------------------------------------------------------------Automated Teller Machine

BBA------------------------------------------------------------------Basic Banking Account

BPD------------------------------------------------------------Banking Policy Department

CATS-----------------------------------------------------Citi Agency and Trust Services

CDC---------------------------------------------------------Central Depositary Company

CDO------------------------------------------------------- Collateralized Debt Obligation

D/A---------------------------------------------------------Document against Acceptance

D/P------------------------------------------------------------Document against Payment

DR-----------------------------------------------------------------------Depository Receipts

FDI---------------------------------------------------------------Foreign Direct Investment

FE--------------------------------------------------------------------------Foreign Exchange

FX--------------------------------------------------------------------------Foreign Exchange

LC-------------------------------------------------------------------------------Latter of Credit

NCBs--------------------------------------------------- Nationalized Commercial Banks

NRPs--------------------------------------------------------------Non Resident Pakistanis

POS------------------------------------------------------------------------------Point Of Sale

SBP------------------------------------------------------------------State Bank of Pakistan

SME--------------------------------------------------------Small and Medium Enterprise

WWSS----------------------------------------------------Worldwide Securities Services

TABLE OF CONTENTS PageACKNOWLEDGEMENTS---------------------------------------------------------- iii ABSTRACT----------------------------------------------------------------------------- iv ABBREVIATIONS-------------------------------------------------------------------- V TABLE OF CONTENTS------------------------------------------------------------- Vi LIST OF TABLES--------------------------------------------------------------------- X LIST OF FIGURES------------------------------------------------------------------- Xi CHAPTER I - INTRODUCTION--------------------------------------------------- 1 1. General------------------------------------------------------------------------------- 1 1.1. Impact of Global Liquidity Crisis on Pakistani Banking Sector---- 2 2. Problem Definition----------------------------------------------------------------- 4 3. Objectives of the Study ---------------------------------------------------------- 5 4. Hypothesis -------------------------------------------------------------------------- 5 5. Research Methodology ---------------------------------------------------------- 6 6. Scope of the Study --------------------------------------------------------------- 6 CHAPTER II – LITERATURE REVIEW----------------------------------------- 7 1. Financial Sector Review: Pakistan’s banking sector remarkably resilient despite challenging environment------------------------------------ 7 2. Foreign Banks in Poor Countries: theory and evidence----------------- 8 3. Role of Foreign banks in Developing Countries--------------------------- 9 4. How does Foreign Entry affects the Domestic Banking Market------- 11 5. Foreign, Private Domestic and Government Banks: New evidence from Emerging Markets------------------------------------------------------------- 12 6.Impact of Financial Reforms on Efficiency of State-owned, Private and Foreign Banks in Pakistan---------------------------------------------------- 14 7. Foreign Banks in Pakistan------------------------------------------------------ 16 8. What Drives Bank Competition? Some International Evidence-------- 17 9. Transforming Banking in Pakistan-------------------------------------------- 18 10. Corporate Governance of Banks in Pakistan----------------------------- 19 11. Pakistan’s Banking Sector Remains Strong------------------------------ 21 CHAPTER III – STRENGTHS AND WEAKNESSES: A COMPARATIVE ANALYSIS BETWEEN CITI BANK AND FAYSAL BANK LIMITED------------------------------------------------------------------------ 23 1.Introduction-------------------------------------------------------------------------- 23 2. Citi Bank Limited ------------------------------------------------------------------ 23 2.1Products and Services Offered by Citi Bank Limited----------------- 25 2.1.1 Deposit Accounts------------------------------------------------------- 25 2.1.1.1 Citi bank Rupee Current Account ------------------------ 25 2.1.1.2 Citibank Rupee Savings Account ------------------------ 25

2.1.1.3 Rupee Citi Ultimate Savings Account ------------------- 26 2.1.1.4 Current Account Premium --------------------------------- 26 2.1.1.5 Citibank Premium Profit------------------------------------- 27 2.1.1.6 Citi One --------------------------------------------------------- 27 2.1.1.7 Premium FCY Savings Account -------------------------- 28 2.1.2 Citi Bank Cards --------------------------------------------------------- 28 2.1.2.1 Citi Bank Gold Credit Card -------------------------------- 28 2.1.2.2 Citi Bank Silver Credit Card ------------------------------- 28 2.1.2.3 Citi Bank Mobilink Credit Card ---------------------------- 29 2.1.2.4 Citi Bank Caltex Credit Card ------------------------------ 29 2.1.2.5 Citi Bank E-Card --------------------------------------------- 30 2.1.2.6 Citibank Shaheen Affinity Credit Card ------------------ 31 2.1.2.7 Citi Bank Debit Card ---------------------------------------- 31 2.1.3 Corporate Banking Products ---------------------------------------- 32 2 1.3.1 Cash Management------------------------------------------- 32 2.1.3.2 Treasury ------------------------------------------------------- 33 2.1.3.3 Loan Products ------------------------------------------------ 33 2.1.3.4 Citi Service ---------------------------------------------------- 34 2.1.4 Securities Services ---------------------------------------------------- 34 2.1.4.1 Agency and Trust Services (CATS)---------------------- 35 2.1.4.2 Securities Lending-------------------------------------------- 35 2.1.4.3 Depository Receipts------------------------------------------ 35 2.1.4.4 Local Settlement Services---------------------------------- 36 2.1.4.5 Local Safekeeping Services------------------------------- 36 2.1.5 Trade----------------------------------------------------------------------- 37 2.1.5.1 Exports--------------------------------------------------------- 37 2.1.5.2 Imports---------------------------------------------------------- 37 2.1.5.3 Guarantees---------------------------------------------------- 38 2.1.6 Merger & Acquisition Advisory-------------------------------------- 39 2.2 Credit Rating-------------------------------------------------------------------- 40 2.3 Branch Network---------------------------------------------------------------- 40 2.4 HR Practices-------------------------------------------------------------------- 41 2.5 Recognized Innovations----------------------------------------------------- 42 2.5.1 Advisory Projects------------------------------------------------------ 43 3. Faysal Bank Limited-------------------------------------------------------------- 44 3.1 Products and Services Offered By Faysal Bank Limited----------- 44 3.1.1 Deposit Accounts----------------------------------------------------- 45 3.1.1.1 Faysal Savings---------------------------------------------- 45 3.1.1.2 Faysal Sahulat----------------------------------------------- 45 3.1.1.3 Rozana Munafa Plus--------------------------------------- 46 3.1.1.4 Basic Banking Account------------------------------------ 47 3.1.1.5 Faysal Moavin Savings Account------------------------ 48 3.1.1.6 Faysal Premium--------------------------------------------- 49 3.1.1.7 Faysal Izafa--------------------------------------------------- 50

3.1.1.8 Faysal Mahfooz Sarmaya---------------------------------- 51 3.1.1.9 FCY Saving Plus---------------------------------------------- 52 3.1.2 Consumer Loans-------------------------------------------------------- 52 3.1.2.1 Faysal Car Finance------------------------------------------ 53 3.1.2.2 House Finance------------------------------------------------ 53 3.1.2.3 Faysal Finance------------------------------------------------ 54 3.1.3 Corporate and Investment Products------------------------------- 55 3.1.3.1 Corporate Financing----------------------------------------- 55 3.1.3.2 SME Financing------------------------------------------------ 55 3.1.3.3 Trade Financing----------------------------------------------- 55 3.1.3.4 Treasury and Capital Markets----------------------------- 56 3.1.3.5 Investment Banking------------------------------------------ 56 3.1.3.6 Agriculture Financing---------------------------------------- 56 3.1.3.7 Cash Management------------------------------------------- 58 3.1.4 Services------------------------------------------------------------------- 59 3.1.4.1 PocketMate Visa Debit Card------------------------------- 59 3.1.4.2 Transfer of Funds-------------------------------------------- 60 3.2 Credit Rating-------------------------------------------------------------------- 60 3.3 Branch Network---------------------------------------------------------------- 61 3.4 HR Practices-------------------------------------------------------------------- 62 4. Comparative Study between Citi Bank Limited and Faysal Bank Limited------------------------------------------------------------------------------------ 63 4.1 Citi Bank Limited-------------------------------------------------------------- 63 4.1.1 Strengths---------------------------------------------------------------- 63 4.1.2 Weaknesses------------------------------------------------------------ 66 4.2 Faysal Bank Limited--------------------------------------------------------- 66 4.2.1 Strengths---------------------------------------------------------------- 66

4.2.2 Weaknesses------------------------------------------------------------ 67 CHAPTER IV- OPPORTUNITIES AND THREATS EXPERIENCED BY CITI BANK AND FAYSAL BANK LIMITED WHILE WORKING IN PAKISTAN------------------------------------------------------------------------------ 68 1. Opportunities----------------------------------------------------------------------- 68 1.1 International Economic Conditions--------------------------------------- 69 1.2 Bank Reforms----------------------------------------------------------------- 70 2. Threats------------------------------------------------------------------------------- 71 2.1.International Economic Conditions--------------------------------------- 71 2.2. Political Conditions---------------------------------------------------------- 72 CHAPTER V- DISCUSSION------------------------------------------------------- 73 1. General------------------------------------------------------------------------------- 73 2. Survey Forms----------------------------------------------------------------------- 73 2.1 Critical Analysis--------------------------------------------------------------- 73 2.2 Purpose of the Survey------------------------------------------------------- 73

2.3 Scope of the Survey--------------------------------------------------------- 74

3. Key Findings of the Survey----------------------------------------------------- 74 3.1 Citi Bank Limited-------------------------------------------------------------- 74 3.2 Faysal Bank Limited--------------------------------------------------------- 80 CHAPTER VI- CONCLUSIONS--------------------------------------------------- 86 CHAPTER VII- RECOMMANDATION------------------------------------------- 89

REFRENCES-------------------------------------------------------------------------- 90

APPENDIX- A-------------------------------------------------------------------------- 92

LIST OF TABLES

Table Page

Table III- 1: Amount Spent through Caltex Credit Card and Free Fuel

Obtained on it-------------------------------------------------------------------------- 30

Table III-2: Credit Rating of Citi Bank Limited--------------------------------- 40

Table III-3: Citi Bank’s Branch and ATM Network---------------------------- 41

Table III-4: Faysal Saving Account Profit Calculation on Minimum

Monthly Balance---------------------------------------------------------------------- 45

Table III-5: Rozana Munafa Plus Account Profit Calculations on Daily

Balance---------------------------------------------------------------------------------- 47

Table III-6: Faysal Moavin Account Profit Calculation on Daily Balance---- 48

Table III-7: Faysal Premium Account Profit Calculated on Daily Balance-- 49

Table III-8: Faysal Izafa Account Profit Calculated on Tiers Basis------- 50

Table III-9: Increase in Branch & ATM Network on Yearly Basis--------- 62

Table III-10: Province Wise Branch Network---------------------------------- 62

Table III-11: Staff Strength at Faysal Bank------------------------------------- 63

LIST OF FIGURES

Figure Page

Figure III-1: Ownership of Citi Bank----------------------------------------- 24

Figure V-1: Citi bank product offering--------------------------------------- 74

Figure V-2: Key Issues Impacting Citi bank------------------------------- 76

Figure V-3: Citi bank Response to Global Economic Crisis----------- 77

Figure V-4: Faysal bank product offering---------------------------------- 80

Figure V-5: Key Issues Impacting Faysal bank--------------------------- 82

Figure V-6: Faysal bank Response to Global Economic Crisis------ 83

CHAPTER I INTRODUCTION

1. General

The banking industry has traditionally been the engine of development

for many countries across the world, and the banking industry has dominated

the economies of many countries. It has always been one of the crucial

elements for the well-being of the economic structure of a country but from

the past three years i.e. 2007-09 the banking industry across the globe is

facing extreme financial turmoil.

Year 2008 will be remembered as one of the most turbulent years in

world’s economic history, the worst of its kind since Great Depression.

Impact of the sequence of global events, ranging from global financial turmoil

to surge in global commodity prices, has impacted regions differently and

unevenly. United States being the epicenter of the Tsunami of financial

market upheaval, has witnessed deeper and steeper reverberations whose

tremors have impacted all of Europe.

From what started as turmoil in one segment of financial markets i.e.

Subprime mortgage markets and CDOs etc., which constituted a very small

part of the global financial assets, the ravaging fire has spread across all

segments of financial sector, and across continents. The liquidity crisis

became prominently visible in September, 2008 with the failure of several

large United States based financial firms. Global stock markets fell and high-

yielding currencies have lost value.

USA, Britain, France, Italy, Japan, China, Germany and many

countries of Latin America are worried about the global economic meltdown

due to persistence global liquidity crisis. They are all trying to seek a common

strategy to combat with this economic and financial situation. Emerging

market countries are turning to the International Monetary Fund (IMF) to help

shore up confidence in their financial systems strained by a global credit

crunch. The crisis is ongoing and continues to change, evolving at the close

of October 2008 into a currency crisis with investors transferring vast capital

resources into stronger currencies such as Yen, the Dollar and the Swiss

Franc.

1.1 Impact of Global Liquidity Crisis on Pakistani Banking Sector

Wracked by political instability and hard hit by the global economic

crisis, Pakistan is teetering on the brink of default. Pakistan Finance Ministry

has said that it is left with overall foreign reserves of $7.3 billion as of October

17, 2008, of which the SBP possesses $3.98 billion and the commercial

banks $3.32 billion. Out of $3.98 billion, $1.5 billion have been consumed in

the wake of forward booking liabilities, leaving the central bank with only $

2.48 billion of net foreign exchange reserves, which were barely enough to

cater to the needs of one-and-half month of imports.

The rupee has fallen sharply. The international credit rating agency,

Standard & Poor’s, has downgraded Pakistan to a position superior only to

the Seychelles, which has already defaulted. SBP has decided to take the

following actions to ease the immediate liquidity situation.

Cash Reserve Requirement (CRR) for all deposits up to 1 year

maturity is being reduced by 200bps to 6.00%. This will release an

additional liquidity of about Rs 60 billion into the system.

It has been decided to fully exempt the time deposit of 1 year tenor

and above from Statutory Liquidity Requirements (SLR). This will

inject about Rs 120 billion in the market.

Another Rs 30 billion will be released on 15th November.

Cumulatively SBP from 17th October to 15th November, 2008 will

have released liquidity of Rs 210 billion.

However banking system of Pakistan has escaped the major ravaging

effects of recent financial market turmoil. Dr: Shamshad Akhtar, President

SBP said;

“The financial markets in Pakistan have not been hit by the

subprime markets or the associated contagion directly as Pakistan’s banking

system from July 2007 to September 2008 did not face any liquidity

problems”.

While speaking at The Asian Banker Dialogue on “The Banks We Like

and the Impact of the Global Financial Crisis on Pakistan’s Banks. The

capital adequacy ratio of the banking system is strong at 12.1%, well above

the internationally acceptable minimum requirement of 8%. Pakistan’s

banking sector is quite resilient and fully capable of withstanding market

shocks and adverse macro economic conditions. State Bank of Pakistan

launched financial sector reforms in July 2008 to lay foundations for further

enhancing the robustness of the financial system to cope with the emerging

challenges.

According to assessment of State Bank of Pakistan Financial Stability

Review 2007-2008, the stability of the financial system is derived essentially

from the banking sector. An assessment of the performance of the banking

sector from January 2007, to June 2008 shows that Pakistan’s banking

sector has over the years nurtured itself such that it is able to withstand some

of the shocks it has faced in the last 18 months or so.

The Pak-rupee regained its strength against the dollar in the open

market, on 30th December 2008, which shows the ability of the Pakistani

Banking Sector to pull back it self from critical financial crisis affecting all the

currencies globally. The greenback started the day’s trading at Rs 78.70 for

buying and after losing strength closed at Rs 78.50 for buying and Rs 79.50

for selling. Therefore, the rupee incurred a gain of 20 paisa.

The European single currency was also down against the rupee as it

started the day’s trading at Rs: 110.15 for buying, posted losses and was

changing hands at Rs 109.06 for buying and Rs: 112.59 for selling at the end

of the day’s trading. Therefore, the rupee was up by Rs: 1.09. Similarly, the

British currency depreciated against the rupee as it commenced the day’s

trading at Rs: 112.58 for buying and after shedding grounds closed at Rs:

111.35 for buying and Rs: 114.95 for selling at the end of the day’s trading.

Thus, the rupee incurred a gain of Rs: 1.23.

2. Problem Definition

The study analyses some conceptual and empirical issues of the

Pakistani banking sector. Despite of the liquidity turmoil going around the

world where banks are going bankrupt in various developed countries of the

world foreign banks are entering in Pakistan. The major emphasis of the

study is to answer the following questions: What are the strengths and

weaknesses of the Pakistani banking sector? What are the opportunities and

challenges faced by Pakistani banking sector with the arrival of foreign banks

in the country? What are the strengths and weaknesses of foreign banks

working in Pakistan? What are the opportunities and challenges faced by

foreign banks while working in Pakistan?

3. Objectives of the Study

Specific objectives of the study are:

1. To investigate and conduct an analysis to determine the strengths and

weaknesses of foreign banks working in Pakistan by picking the model of

Citi Bank and Faysal Bank Limited.

2. To investigate and conduct an analysis to determine the opportunities and

threats faced by foreign banks working in Pakistan.

3. To investigate the impact of entry of foreign banks on the Pakistani

banking sector.

4. Hypotheses

1. Citi bank in the capacity of foreign bank failed to perform under severe

liquidity crisis.

2. Faysal bank in the capacity of a domestic financial institution has

performed well under severe liquidity crunch.

5. Research Methodology

The main method of determining and collecting the data is based on

studying reviewed literature. For comparative study structured interviews and

questionnaire is constructed and analyzed. Comparative study of Citi bank

and Faysal bank was conducted to authenticate the hypotheses. My research

is based on secondary and tertiary data which includes:

Structured Interviews

State bank of Pakistan – Library

Semiannual Periodicals in Economics

Internet

Books

Newspapers - Articles

6. Scope of the Study

This piece of research will investigate the SWOT’s faced by foreign banks

working in Pakistan and the threats imposed on Pakistani banks with the arrival

of foreign banks. A comparative study of Citi Bank and Faysal bank limited from

2007-08 is considered. Data is collected from above said bank and analyzed

respectively to determine the SWOT’s faced by both the banks during the

financial crisis of 2007-08.

CHAPTER II

REVIEW OF LITERATURE

1. Financial Stability Review: Pakistan’s banking sector remarkably resilient despite challenging

environment

DAILY TIMES (2008) says that Pakistan’s banking sector has

remained remarkably strong and resilient, despite facing pressures arising

from weakening macroeconomic environment since late 2007. According to

the assessment of the State Bank of Pakistan Financial Stability Review

2007-08 the banking system is on strong footing and has long term potential

– a feature which has served to attract a substantial amount of FDI in the

sector. Performance of the banking sector from January 2007 to June 2008

shows that Pakistan’s banking system has over the years nurtured itself such

that it is able to withstand some of the shocks it has faced in the last 18

months or so.

Aggregate financial soundness indicators have improved since early

2000, and continue to exhibit strong performance. Tighter provisioning

requirements may have reduced profits, but have positioned banks well.

The way forward for the financial sector is to maintain both the

simplicity and transparency of product structures. Effective regulation is the

preferred route for central banks responsible for safeguarding both monetary

and financial stability.

Profitability of the banking system continues to be impressive, largely

emanating from the persistent growth in high-yield earning assets and

expanded business volumes. Before-tax Return on Assets of the banking

system remains strong at 2.3 percent in June 2008. The strengths built up

over the years are now coming in handy in managing the recent financial

strains. [DAILY TIMES, December 31, 2008]

2. Foreign Banks in Poor Countries: Theory and

Evidence

Enrica Detragiache, Thierry Tressel and Poonam Gupta (2006) have

mentioned that the proponents of foreign bank entry claim that these banks

can achieve better economies of scale and risk diversification than domestic

banks, introduce more advanced technology (especially risk management),

and increase competition. Opponents point out that an important part of

bank’s business, namely lending, to informationally opaque firms, such as

small firms, is inherently local in nature and is not easily carried out by large

organizations managed from far away. We have found that foreign banks in

lower-income countries (LICs) such as South and East Asian countries and

Latin American countries lend predominantly to the safer and more

informationally transparent customers, such as multinational corporations,

large domestic firms, or the government.

Foreign banks are better than domestic banks at monitoring

“hard” information, such as accounting information or collateral values, but

not at monitoring “soft” information, such as the borrower’s entrepreneurial

ability or trustworthiness.

Based on cross-country studies, foreign-owned banks have been

found to have lower operating costs and higher profitability than private

domestic banks. Foreign bank entry in developing countries also appears to

lower interest margins and profitability, suggesting an increase in

competition.

Drawing on an exceptionally rich dataset of 80,000 business loans in

Pakistan we found that the private domestic banks lend more to

informationally opaque businesses than foreign banks, and that they are

more successful at recovering defaulted debt. [IMF WORKING PAPER

(WP/06/18), January, 2006].

3. The Role of Foreign Banks in Developing Countries: A Survey of the Evidence

Joydeep Bhattacharya (2000) has analyzed that there are four broad

reasons as to why banks establish branches and subsidiaries in foreign

countries.

1. Home-Country Customer Relations: The most cited explanation is

to “follow-the-customer” hypothesis. Banks go multinational to better

serve the foreign operations of the domestic corporate entities.

Foreign banks have a comparative advantage over local banks in that

over the years, through investment in information and relationship

capital, they have reduced the cost of monitoring the financial

conditions of the MNC in question.

2. Business Opportunities: Banks in some countries may be inefficient

(outdated technology) or uncompetitive. Such conditions may attract

foreign entrants to operate and to penetrate these markets by

employing newer technology or better marketing tools.

3. Regulatory Arbitrage: Banks, in general face strict regulatory

practices wherever they are based. However, some nations may

choose to open up and allow foreign banks to enter in a relatively relax

regulatory regime if the perceived gains are high and thus attract

foreign banks.

4. Diversification and Interest Rate Differentials: The optimal policy

for a multinational bank is to maximize profit for a given level of risk or

to minimize risk given a desired level of profit. The total portfolio risk of

both the domestic and foreign portfolio assets has been lower then the

risk of purely domestic portfolio.

When a foreign bank enters a host country there are certain common

concerns that the country has in allowing a foreign bank entry.

1. Fear of Foreign Domination: A stated fear in the minds of central

bankers and government is that unrestricted entry of foreign banks

may result in their assuming dominant positions in the domestic

market, by driving out less efficient or less resourceful domestic

banks.

2. Cream-Skimming Behavior: Foreign banks carve out a niche for

themselves in the upper/richer end of the market. Thus they cream-

skim the market, by taking a disproportionate share of the best of local

business away from domestic banks.

3. Lack of Local Commitment: Under times of local distress, it is

believed that foreign banks will be the first once to “leave the ship”. In

times of distress (eg. a bad recession) in the foreign banks’ home

country; foreign banks may wind-up foreign operations in order to

stabilize earnings at home.

Countries allowing foreign banks to enter broadly expect two types of

benefits to flow in to the domestic economy.

1. A Boost to Domestic Banking Sector: Countries expect foreign

banks to enter and shock the domestic banking sector by bringing in

“healthy competition”. Domestic banks, are expected to react to the

foreign presence and compete fiercely to retain their previous market

shares, thereby lifting domestic banking sector to international levels

of efficiency.

2. Greater Access to International Markets: Countries, expect from

foreign banks to aid in the development of trade and foreign direct

investment. First, their domestic operations will benefit local producers

and, in particular export/import companies and MNCs. Secondly;

foreign banks are expected to increase foreign currency inflows into

the country. [www.econ.iastate]

4. How Does Foreign Entry Affects the Domestic Banking Market

Sting Claessens, Aali Demirguc-Kunt, Harry Huizinga (1998) has

explored that the potential benefits of foreign bank entry for the domestic

economy are in terms of better resource allocation and higher efficiency. It

has been found that foreign banks may

Improve the quality and availability of financial services in domestic

market by increasing bank competition.

Serve to stimulate the development of the underlying bank supervisory

and legal framework.

Enhance a country’s access to international capital.

Bhattacharaya (1993) reports specific cases in Pakistan, Turkey, and

Korea, where foreign banks helped to make foreign capital accessible to fund

domestic projects.

We estimate empirically how foreign bank entry affects the operations

of domestic banks. We found that entry of foreign banks reduces the

profitability of domestic banks, while there is some evidence that the non-

interest income and the overall expenses of domestic banks are also

negatively affected by foreign bank entry.

In developing countries, foreign banks may be able to realize high

interest margins, because they are frequently exempt from credit allocation

regulations and other such restrictions, especially in countries where

domestic banking markets are dominated by State banks.

[www.worldbank.org, WPS 1900 (WPS 1918) 1998]

5. Foreign, Private Domestic and Government Banks: New Evidence from Emerging Markets

Atif Mian (2003) has pointed out that, banks as financial

intermediaries are considered an important element for growth in emerging

economies by most. Yet less is known about the strengths and weaknesses

of different types of bank organization and their design. The three dominant

types of banks in emerging markets are government, private domestic and

foreign banks.

The differences are important to document and analyze because the

three types of banks differ in important ways, in the structure of their

incentives, organization, and regulation. For eg: government banks suffer

from the moral hazard problem of being both the owner and the regulator,

private domestic banks have higher cash-flows incentives, and greater

distance between the regulator and the ownership. Foreign banks on the

other hand being relatively similar to private domestic banks in terms of

incentives and regulation, but they differ in their organizational structure.

Our analysis reveals that private domestic banks appear to be more

“aggressive” in their lending than foreign banks. They hold significantly less

liquid assets than foreign banks, and correspondingly hold more assets in the

form of loans. Moreover, of the loans that each type of bank gives out, private

domestic banks earn 2.6% higher return than foreign banks. The higher

return on loans despite similar default rates implies that private domestic

banks are more profitable than foreign banks on the loan side.

However, the picture reverses on the deposit and banking services

side. Private domestic banks have higher interest expense on deposits, and

lower revenue from the sale of banking services. Consequently there is no

significant difference in the average profitability of private domestic and

foreign banks in emerging economies. Foreign banks are comparatively less

likely to lend to “soft information” firms, and more likely to lend to “hard

information” firms. “Soft information” refers to information that cannot be

easily publicly verified by a third party. Stein (2002) argues that organizations

with more hierarchical structures are more likely to rely on “hard information”

as opposed to organizations with flatter structures. The reason is that flatter

organizations have better control and information on their managers, and

thus can afford to give them more freedom to decide what should be done.

We measure the relative sensitivity (correlation) of banks to different

types of macro shocks. These correlations show two effects: the response of

bank to the shock, and the exposure of the bank to the shock. There is an

interesting separation in the type of shocks that private domestic and foreign

banks are sensitive to. In particular, private domestic banks respond more to

macro shocks affecting the local (private) corporate sector, whereas foreign

banks respond more to macro shocks affecting the foreign corporate and

government sectors. Foreign banks are more sensitive to changes in the

aggregate foreign currency deposits, whereas private domestic banks are

more sensitive to changes in the aggregate domestic currency deposits.

With respect to government banks, we find that government banks

perform significantly worse than both private domestic and foreign banks in

terms of overall profitability. [JOURNAL OF BANKING AND FINANCE, 2003]

6. Impact of Financial Reforms on Efficiency of State-owned, Private and Foreign Banks in

Pakistan

Abid .A. Burki, G.S.K. Niazi (2006) has found that government

ownership of banks is very common in emerging markets where, after

decades of excessive government regulatory controls and dominance of

state-owned banks, foreign and private banks have recently been allowed to

compete freely. Financial reforms in Pakistan have transformed the banking

industry during the 1990s. These reforms included licensing of several new

private and foreign banks, higher supervision and strengthening of prudential

regulations aimed at improving financial systems and monetary

management.

To study the relationship, we divide the sample into pre-reform (1991-

92), first-reform (1993-96) and second reform (1997-00) periods. The results

obtained indicate strong evidence that the first-phase of reforms failed to

convert cost inefficient banks into efficient banks.

With nationalization of the entire banking and insurance sector in

1972, five nationalized commercial banks (NCBs) were set up after merger of

some nationalized banks. These five public sector banks dominated the

scene with their holding of 92% share in total banking assets while the rest of

the share was in the hands of foreign commercial banks. Since the

nationalization of commercial banks in 1972, private ownership of banks was

not allowed until this ban was lifted as part of financial sector reforms in

1991.

The first-reform period was characterized by liberalization and

institutional strengthening of the banking sector. Liberalization started when

ten new private banks were granted permission to operate in 1991.

A temporary ban was introduced on new banks in 1995, private and

foreign banks were allowed to grow and extend operations by easing of

branch policy in 1995 whereby controls on opening of new bank branches

were removed. The first set of reforms became effective from 1993-96 while

a second set of further reforms were initiated between 1997 and 2000.

The minimum paid up capital requirement was set at Rs.500 million in

December 1997. Due to the embryonic role of foreign and private banks, the

share of state-owned banks in bank deposits gradually declined from 93% in

1990 to only 56% in 2000 while the share of private banks increased from

zero to about 30% in the same period. [LAHORE UNIVERSITY OF MGT

SICENCES, CMER WORKING PAPER (06-49) 2006]

7. Foreign Banks in Pakistan

Shabbir H. Kazmi (1999) has mentioned that the foreign banks,

operating in the country, have posted very poor results for the period ending

December 31, 1998 after a long time. Foreign exchange deposits, a strong

base for these banks in the past, are no longer available. Declining yield on

T-Bills is another reason for reduction in the profit. None of these banks is

expected to take an exit from Pakistan but further expansion in branch

network may not take place in near future.

A closer look at the annual reports of these banks for 1998 indicates

different trends. Some banks have succeeded in increasing deposits and

many registered a decline. Profit margins have been reduced and some

banks have even declared loss for the year. Heavy provisioning against non-

performing loans was a factor responsible for the reduction in the profitability

of these banks.

Foreign banks which were prompt in redefining their working

strategies in Pakistan succeeded in maintaining their share in total deposits.

Whereas the private domestic banks successfully entered into the market

segment previously considered to be an exclusive domain of foreign banks.

This dent was made by local banks by making huge investments in

technology and offering superior quality services.

The key factor of profitability of commercial banks is dependent on the

return on assets and difference between the borrowing and lending rates.

Provision against non-performing loans affects the profitability of banks

directly. City bank made the highest provision amounting to Rs: 512 million

however these provisions are written back in case of recovery. [July 04,

1999]

8. What Drives Bank Competition? Some International Evidence

Sting Claessens and Luc Laeven (2003) have found that competition

in the financial sector matters for a number of reasons. The degree of

competition in the financial sector can matter for the efficiency of the

production of financial services, the quality of financial products and the

degree of innovation in the sector. A reason specific to the financial sector is

the link between competition and stability.

The performance measures, such as the size of the banking

operations or profitability, do not necessarily indicate the competitiveness of

the banking system. The degree of competition in the banking system should

be measured with respect to the actual behavior of (marginal) bank conduct.

The actual behavior should be related not only to banking market structure,

but also to foreign bank ownership, and the severity of activity restrictions, as

those can limit the degree of intra-industry competition.

It is found that a country with greater foreign bank entry, and lack of

restrictions on foreign bank activity in the host country result in higher

competition among the private domestic, government and foreign banks.

Tighter entry requirements are negatively linked with bank efficiency,

leading to higher interest rate margins and overhead expenditures, while

restricting foreign bank participation tends to increase bank fragility. [WORLD

BANK POLICY, RESERCH WORKING PAPER (3113) August, 2003]

9. Transforming Banking in Pakistan

Mohammad Zubair Khan (1998) has analyzed that Pakistan undertook

ambitious financial reforms in the early 1990s in an effort to establish a more

market- based system of monetary management. The reforms were designed

primarily to correct the distortion implicit in the administered structure of rates

of return on various financial instruments, to enhance competition and

efficiency in the financial system, and to strengthen State Bank of Pakistan

(SBP) supervision.

In accordance with existing policies, foreign currency deposits were

exchanged by commercial banks for rupees with the SBP for domestic

lending, the banks purchased forward contracts from the SBP at a cover fee

that was consistently 3 to 5% below the private market forward premium. As

a result, banks found it increasingly profitable to intermediate in foreign

currency deposits while the SBP suffered large fiscal losses. Problems of the

financial sector are rooted in the following areas:

Lack of financial discipline encouraged by weak supervisory

capacity of the SBP.

Mismanagement of short-term capital inflows.

Weak resource mobilization.

Financial sector reforms in 1997/98 were undertaken mainly to

promote financial saving, improve the process of financial intermediation,

enhance competition, and assure efficient allocation of financial resources.

There are serious structural weaknesses in the banking sector reform

strategies adopted. The weaknesses are as follows:

There is an overestimation of the capacity of the market to absorb

assets that need to be liquidated.

The development of capital market has been over looked.

Project loans that have contributed significantly to the frequency of

loan defaults have not been fully assessed.

Implementation of reform efforts has been handicapped by the loss of

confidence resulting from freezing of foreign accounts in May 1998.

Although in recent years the share of the non-banking financial sector

has increased in terms of lending, the financial system is still dominated by

commercial banks. Between 1993 and 1995, the banking sector as a whole

experienced declining profitability, increasing inefficiency, and a weakening

capital base, even by Pakistani accounting standards. However, there was a

marked difference in performance among the NCBs, partially privatized

banks, foreign banks, and private domestic banks. [STUDY

COMMISSIONED BY ABD FOR RETA, http://uoit.ca/sas, July, 1998]

10. Corporate Governance of Banks in Pakistan

Ahmed M. Khalid and Muhammad Nadeem Hanif (2004) has

discussed that the term “corporate governance” essentially refers to the

relationships among management, the board of directors, shareholders, and

other stakeholders in a company. These relationships provide a framework

within which corporate objectives are set and performance is monitored.

Corporate governance also provides the structure through which the

objectives of the company are set, and the means of attaining those

objectives and monitoring performance are determined.

Sound corporate governance is particularly important for banks

because the rapid changes brought about by globalization, deregulation and

technological advances are increasing the risks in banking systems.

Unlike other companies, most of the funds used by banks to conduct

their business belong to their creditors, in particular to their depositors.

Linked to this is the fact that the failure of a bank affects not only its own

stakeholders, but may have a systemic impact on the stability of other banks.

Banks play an important role in the corporate governance system.

Their role varies from one model to another. This is due to the banks’

function as credit issuers, as banks still remain primary providers of credit to

almost all of the economies in the world. Internationally the issue of corporate

governance has been recognized as on of the most important issue of

corporate sector.

Pakistan is no exception and State Bank of Pakistan has recently

issued “Handbook of Corporate Governance” with the objective of providing

guidance to the Board of Directors and the Management of the banks for

promoting corporate governance in their respective institutions.

Banking crises serves as an indicator of poor governance of banks.

The episodes of banking crises in 1980s in Europe and 1990s in Latin

America and Asia suggest that such crisis may lead to major bankruptcies,

recession, and economic and political instability, which necessitate the need

for strong corporate governance. [LAHORE UNIVERSITY OF MGT

SCIENCES (LUMS) May, 2004]

11. Pakistan’s Banking Sector Remains Strong

Faizan Chaudary (2009) has found out that the Pakistani banking

sector has remained remarkably strong and resilient during the last 18

months but the excessive dependence of economy on banking system is

quite clear in comparison with the other emerging economies. The banking

system is on strong footing and has long term potential - a feature which has

served to attract a substantial amount of FDI in the country, with established

global financial institutions now actively participating in the domestic financial

sector.

In contrast to the liberalized financial system in the west which took its

toll in the form of the current global financial crisis, there are stringent

regulations and adequate policies in place to help the banking system

manage its risks. Stress tests conducted on June-2008 the resulting data

indicate that the large banks are relatively robust, with the medium and small-

sized banks positioning themselves in niche markets.

Capital adequacy of the banking system remains strong at, 12.1% by

the end-June 2008, well above the internationally acceptable minimum

requirement of 8.0% and the risk weighted assets ratio of the banking system

was at 9.7%.

The writer of the article also found that the demand for credit from both

the government and the private sector resulted in liquidity strains faced by

some individual banks, which also came from the combined impact of their

weak deposit mobilization and low interest rates offered on deposits.

[PAKISTAN TALK, NEWS&VIEWS, January 4, 2009]

CHAPTER III STRENGTHS AND WEAKNESSES:

A COMPARATIVE ANALYSIS BETWEEN CITI BANK AND FAYSAL BANK LIMITED

1. Introduction

The banking industry has traditionally been the engine of development

for many countries across the world, and indeed today, banking industry

dominates the economies of many countries. It has always been one of the

crucial elements for the well-being of economic structure of a country.

Pakistan’s banking industry is one of the strongest banking industry in this

part of the world as a result of which more and more foreign banks are

coming to Pakistan each year.

The main aim of the chapter is to identify the strengths and

weaknesses experienced by foreign banks when they come to Pakistan, in

order to do so I have conducted a comparative analysis between two foreign

banks. The two well known banks that I have taken for this comparative

analysis are Citi Bank and Faysal Bank limited.

2. Citi Bank Limited

Citibank is a major international bank, founded in 1812 as the

Citi Bank of New York. In 1863 the bank joined the U.S. new national banking

system and became The National City Bank of New York. Citibank came to

Pakistan in 1961 and is now the consumer banking arm of financial services

giant Citigroup, one of the largest companies in the world. To become a part

of MasterCard, the bank introduced its First National City Charge Service

credit card - popularly known as the "Everything Card" - in 1967.

As of March 2007, it is the largest bank in the United States by its

holdings. Citibank has operations in more than 100 countries and territories

around the world.

In addition to the standard banking transactions, Citibank offers

insurance, credit card and investment products etc. Their online services

division is among the most successful in the field, claiming about 15 million

users worldwide. The ownership of the Citibank is divided as follows:

36.0% -- United State Government.

11.1% -- Government of Singapore Investment Corporation (GIC)

6.0% -- Kuwait Investment Authority

4.9% -- Abu Dhabi Investment Authority (ADIA)

4.3% -- Kingdom Holding Company / Saudi Arabia

Figure III-1: Ownership of Citi Bank

United State Government, 36%

Government of Singapore Investment 

Corporation, 11.10%

Kuwait Investment 

Authority, 6.00%

Abu Dhabi Investment 

Authority, 4.90%

Saudi Government, 

4.30%

General Public , 37.70%

Ownership of Citi Bank

2.1 Products and Services Offered by Citi Bank Limited

Citi bank offers a diverse range of products and services to its

commercial and corporate clients. The product mix offered by Citi bank is

divided into the following sub-categories:

2.1.1 Deposit Accounts

Citi bank offers eight different types of deposit accounts to its

customers which are categorized as:

2.1.1.1 Citi bank Rupee Current Account

Citibank current account is the first of its kind in Pakistan, by providing

a complete solution to the customer’s needs by saving time and money. The

minimum balance requirement for current account is R.s 100,000. Citi bank

current rupee account comes with the following features:

Receive or make payments instantly.

Withdrawing up to Rs. 80,000 with Citi bank ATMs

Depositing cash or cheques into your account on site ATM.

Transfer of funds from one Citi bank account to other Citi bank

account at the ATM location.

2.1.1.2 Citibank Rupee Savings Account

Citibank rupee savings account offers the customers with the flexibility

that is unique to Citibank. Inter-branch access is a special feature that gives

customers the ease to deposit and withdraw their funds from any Citibank

branch in Pakistan. This account has these features:

Minimum Balance Requirement: Rs 100,000.

Profit is calculated on the daily balance and credited bi-annually.

Funds can be withdrawn anytime without any notice.

Pay orders, Funds etc can be deposited and withdrawn from any

Citibank branch in the country through Citi 24/7 Phone Banking facility.

2.1.1.3 Rupee Citi Ultimate Savings Account

The Citi-ultimate savings account can be opened with a minimum of

Rs 100,000 and attractive annualized rates of expected return will be earned

on ythe savings. This account has the following features:

Profit is calculated on the monthly average balance and credited

monthly.

Funds can be withdrawn anytime without any notice.

Funds can be deposited and withdrawn from any Citibank branch in

the country.

2.1.1.4 Current Account Premium

Open a current account with Citibank and maintain a minimum

average balance of Rs 1,000,000 to receive all the benefits of Citigold. The

most prestigious and globally recognized priority banking service that

provides:

Free Citibank Visa Debit Card.

Withdraw up to PKR 160,000 per day.

Spend up to PKR one million per month.

Free Premier Citigold Credit Card with a limit of up to Rs. 500,000.

Free Pay Orders, Manager’s Cheques, Demand Drafts & Telegraphic

Transfers.

Free Bank Statements and Reference Certificates.

Free SMS Alerts for Account Activity.

Extended Banking Hours: 9 a.m. – 8 p.m.

2.1.1.5 Citibank Premium Profit

This rupee Term Deposit provides the customer with one of the most

lucrative investment options available today. Place your funds in Premium

Profit and watch your savings grow at one of the attractive rates offered in

the market.

Minimum Balance: Rs.50, 000.

Tenors of months, 1, 3, 6, 9, 12, 18, 24, 3yrs, 4yrs, 5yrs.

Loan financing against your deposits at market competitive rates.

2.1.1.6 Citi One

Citi One is known as the all in one bank account and can be opened

with a minimum of Rs. 50,000 this account comes with the following

interesting features:

Free bank statement.

Free 6 pay orders per month.

Reduced Debit Card annual fee.

Annual fee waiver for the first year on Citibank Credit Cards.

Convenience of Citibank online.

2.1.1.7 Premium FCY Savings Account

Earn attractive rates of return on your Foreign Currency through Citi

bank’s Premium FCY Savings Account. The minimum balance requirement

for this account is $ 5000. Some features include:

Monthly Profit Payout in Foreign Currency.

5 Free Bank Statements.

Withdraw US dollars via Citibank ATMs.

Citi Phone Banking gives the convenience of 24-hour banking where

the customer can get information on their account, recent transactions

and other facilities.

2.1.2 Citi Bank Cards

2.1.2.1 Citi Bank Gold Credit Card

The Citibank Gold Credit Card is specially designed for the customers

exclusive life style and their special needs. As a Gold Credit Card member

the customer can enjoy a higher Credit Limit throughout the world. If the

client has a monthly income of Rs.50, 000 or above, and is a Pakistani

citizen, then he is eligible to apply for a Citibank Gold Credit Card.

2.1.2.2 Citi Bank Silver Credit Card

The Citibank Silver Credit Card brings the convenience and financial

flexibility the customers can expect from the World's No. 1 Credit Card. If the

customer has a monthly income of Rs.16,000 (Rs 8,000 for selected

corporate employees) and is a citizen of Pakistan then he/she is eligible to

apply for a Citibank Silver Credit Card.

2.1.2.3 Citi Bank Mobilink Credit Card

The Citi bank Mobilink credit card allows the customer with double

benefits by providing all the features of a credit card along with free jazz

airtime every time the customer uses his Citi Mobilink credit card. This credit

card is providing very interesting features:

Get an annual fee waiver on the Citi Mobilink Credit Card (Gold Card:

Rs. 4,000; Classic Card: Rs.2,000)

No annual fee on Citi Mobilink Credit Card when you sign up for

Indigo/Jazz Auto Pay facility

No security deposits on Indigo connections and Indigo international

roaming upon signing up for Auto Pay facility.

2.1.2.4 Citi Bank Caltex Credit Card

With the Citi bank Caltex Credit Card get free fuel on every transaction

of R.s 2,000 done from the customer’s credit card. This card comes with the

following features:

3 Free Supplementary Cards for the first year

Set the limit of your choice on your Supplementary Card

Citibank Caltex Co-brand Credit Card is accepted at over 10,000

merchants locally & 30 million globally.

Withdraw up to 50% of your credit limit at over 700,000 ATMs globally

& at Citibank Branches.

Citibank Secure Wallet Plan is the ultimate protection for your wallet

covering you against fraudulent usage of your Citibank Credit Card or

any other credit card you carry.

Get rewards points for every Rs. 50 you spend on your Citibank Caltex

Co-brand Credit Card

Table III- 1: Amount Spent through Caltex Credit Card and Free Fuel Obtained on it

Spent at Caltex Free Fuel Value R.s 2,000 R.s 40 R.s 5000 R.s 250

Source: Citi bank official website

2.1.2.5 Citi Bank E-Card

E-Card is the first ever Internet Shopping Card in Pakistan, the

Citibank E-Card is packed with unique advantages for shopping on the

Internet. This card comes with the following features:

The Citibank e-card is welcomed at all internet sites that accept Visa

and MasterCard.

Complete online security

Fraud protection because the e-card is printed and not embossed,

which means that it cannot be used at any outlets or ATM machines.

For purchases over Rs. 3,000, convert them into Smart Installment

Plan (SIP) and pay the amount back in installments according to your

own convenience.

2.1.2.6 Citibank Shaheen Affinity Credit Card

The Citibank-Shaheen Credit Card is the first Affinity Card in Pakistan,

offered exclusively to Pakistan Airforce and Shaheen Foundation personnel.

Out of every rupee spent on a Citibank-Shaheen Credit Card, Citibank will

contribute a percentage to Shaheen foundation and to the welfare of our

Airforce personnel.

2.1.2.7 Citi Bank Debit Card

Citi bank introduced its new debit card that is more than an ATM card

with everything that a customer wants from a credit card. This debit card

comes with the following features:

Secure- safer than carrying cash, and allows the customer to define

their monthly purchase limit. The client can even opt for a Photo Debit

Card for added security.

Accepted at over 10,000 retail outlets in Pakistan.

Pay for all your purchases directly from your Citibank account

Fraud Early Warning System- In case of any suspicious transaction on

the customer’s account which is not in line with their normal use

patterns, Citi bank will, on best-effort basis, give the customer a call

confirm whether the transaction is genuine.

2.1.3 Corporate Banking Products

Citi bank offers a diverse range of corporate banking products that are

specially designed for its corporate customers.

2.1.3.1 Cash Management

Cash management is a core business of Citibank. Citi bank’s

experience in the local Pakistani market along with its ability to provide global

solutions enables it to offer a full range of cash management products and

solutions.

Citibank Pakistan offers its cash management products and services

aimed to improve the cash flow side of the business and operations. Through

its elaborate product offering, Citibank aims to:

Manage the increasing complexity of cross-border and domestic

payments

Improve cash flow forecasting under a cost control environment

Limit the exposure to risk associated with growth

Enhance security of the cash flows and reduce the possibilities of

fraud

Improve overall working capital flows via adding efficiency to the

overall operations

The current range of product offerings includes the easy pay an

exclusive telephone bills payment service, designed to eliminate customers'

phone bill payment problems. PTCL bills are delivered to the customers'

offices, at least a week before they are due. Citibank arranges to have the

bills and the payment picked up from the customers. Citibank arranges for

clearance of the check and onward credit to PTCL. Bills are stamped as

'paid' and are returned to the customer within 2-3 days of payment.

2.1.3.2 Treasury

Citibank's Treasury department emerges as a leader in the local

interbank market, as well as the institution of choice amongst importers and

exporters, by providing superior treasury products to its clients. Apart from

dealing in Foreign Exchange (FX) and Money Markets, the interbank desk

participates actively in all Central Bank operations, including T-Bill auctions

and open market operations. The main products traded on the FX desk

include Ready and Spot Outright Purchases/Sales as well as Swaps, while

the Money Market desk deals primarily in Repo and Reverse Repo

transactions.

2.1.3.3 Loan Products

Citibank’s offers two types of corporate loan products:

i. Advance against Merchandise ("AAM") Facility

Citibank offer AAM facility to facilitate stock purchases and fund

receivables. Clients can draw funds as per need up to allocated limits.

ii. Loans against Merchandise

A loan against Merchandise or Demand Finance is a short-term

credit facility with fixed maturity. Repayment of the loan is structured to

correspond with borrower's cash flows. Repayment can be bullet or in

installments.

2.1.3.4 Citi Service

Citi Service is an integrated customer inquiry line for after -sales

service dedicated to giving its clients easy access to accurate answers in the

shortest possible time. With Citi Service, the client needs to make a call on

only one number. Citi service is providing its customers with the following

benefits:

One phone number for fast efficient service

Quick and accurate response to customer inquiries

Regular updates on the status of inquiries

Easy access to Citibank experts

Readily available product knowledge and technical support

2.1.4 Securities Services

Citibank Worldwide Securities Services (WWSS) is a unit of Citigroup

of Global Corporate and Investment Bank. WWSS serves global issuers,

investors and intermediaries. WWSS is the industry's premier custodian of

cross-border assets, top ranked global clearer and recognized leader in

depositary receipt services, and agency and trust services.

Citibank was the first foreign bank to offer custody services in

Pakistan. Citibank's core custody product offers a range of services which

include safekeeping, settlement, cash processing, income collection and

corporate actions, proxy voting services and market information and value-

added services such as Escrow and Depository Services..

2.1.4.1 Agency and Trust Services (CATS)

Citibank Agency and Trust provides Trustee- and Agency-related

appointments for various debt products including commercial paper, medium

term notes, bonds, asset- backed securities, and mortgage- backed

securities. In addition, escrow, project finance, tenders/exchanges warrant

agent and other specialized agency services are also available. CATS

provides a full range of support across multiple currencies, regionally and

globally for issuers looking to raise short, medium and long term debt in all

major markets.

2.1.4.2 Securities Lending

Securities lending involves facilitating the loan of securities from

lenders to fulfill the borrowing requirements of selected brokers, banks,

broker/dealers, and other financial institutions and investment firms

worldwide to support trading strategies and/ or settlement obligations

Citibank currently lend securities in over 25 countries through their global

trading centers in North America, Europe and Asia providing 24-hour

coverage to meet the demands of borrowers worldwide.

2.1.4.3 Depository Receipts

Citibank provides a full range of Depository Receipt services, including

liaison with the issuer, investment bank, issuer’s legal representative and

regulatory agencies during the development of the program. Following the

program launch, Citibank issues DRs against deposit of underlying shares;

provides transfer and registration services, account management, corporate

action services. The bank also supports information needs and sets up

custodian arrangements for holding shares in the issuers’ home market.

2.1.4.4 Local Settlement Services

Citibank will handle all activities related to trade processing which

include matching of trade instructions, accepting / delivering shares from

brokers / counterparties, payment transfers, and monitoring of pending trades

with regular status reporting on all trade settlements and pending trades.

Citibank will handle all cash processing associated with clients securities

portfolio in terms of payments/receipts on account of trade settlements,

collection of dividends, interest payments and related expenses.

2.1.4.5 Local Safekeeping Services

Citibank can hold shares in both physical and scripless form on its

client’s behalf. They have a vault dedicated to custody services for holding

physical shares and also maintain an account with the Central Depository

Company (CDC) for safekeeping and transacting scripless shares. Citibank

offers registration services for physical shares which includes registration

processing, monitoring, outstanding stock and timely collection of shares and

transfer deeds from registrars.

2.1.5 Trade

2.1.5.1 Exports

Different trade products offered for exporters are:

a. Post Shipment Finance: Post shipment finance is a variation of a

demand loan with a loan repayment linked to the maturity of the bills

drawn against LC' or contract. Post shipment finance is offered

against sight as well as usance bills.

b. Export Refinance: Export Refinance is a scheme under State Bank of

Pakistan (SBP) to promote Pakistani Exports. Under this scheme, an

exporter may avail finance from any scheduled bank at a concessional

rate. Export Refinance is available to the exporter under two schemes

Part I or Part II. In Part I an exporter may avail finance against

individual usance L/Cs or contracts after satisfying the terms and

conditions of the scheme, this scheme are available either on a pre-

shipment or post-shipment basis for the exporter. Under Part II an

exporter can avail finance up to a percentage (determined by SBP) of

exports performed in the previous financial year.

2.1.5.2 Imports

Issuance of import LC's: It is a firm undertaking issued by Citibank on

behalf of its customer / importer in favor of the exporter / seller outside the

country. The issuing bank is responsible for the payments to the buyer,

provided the terms of the LC's are fulfilled.

Inward Collection: It is an option using which a Citibank Pakistan customer /

importer can import without opening a letter of credit. There are two types of

collections

D / A: Documents against acceptance

D/ P: Documents against payment (It is a less costly and more

efficient method of importing goods than through opening a LC)

FX Forward cover for imports / repat loans: It is a tool which importers use to

hedge against FX rate risk. They book at today's foreign exchange rate for an

import deal happening at a future time period. (3 months / 6 months etc)

2.1.5.3 Guarantees

A guarantee is issued by Citibank Pakistan (Guarantor) on behalf and

on request of customer (applicant) in favor of a third party (beneficiary), for

the fulfillment of certain defined obligations by the applicant. Usually Citibank

issues the following types of guarantees:

a. Tender Guarantees (Bid bonds): Some tenders require the bidders

(Citibank customers) to furnish bank guarantees to prevent the bidder

from withdrawal from the bid / contract if successful in the tender.

b. Performance Guarantees: A performance guarantee, by Citibank on

behalf of its customers, assures the beneficiary of delivery of goods

and services in accordance with the terms and conditions of the

contract.

c. Advance Payment Guarantees: Citibank will guarantee that the

advance payment by the beneficiary to Citibank's customers will be

utilized for performance of the contract for which the cash was

advanced.

d. Financial Guarantees: Any guarantee provided by Citibank on behalf

of the customer for any financial requirements or deals can be broadly

classified as financial guarantee.

e. Open ended Guarantees: These guarantees do not have an expiry

date and a standard liability clause and return clause (SLC&RC).

f. Back-to-Back Guarantees: A guarantee issued by Citibank Pakistan

in favor of a beneficiary based on a primary guarantee (counter

guarantee) issued in favor of Citibank by an overseas branch of

Citibank or any other bank, on behalf of their customer / applicant.

2.1.6 Merger & Acquisition Advisory

Citibank is the leading provider of financial advisory services in

Pakistan. To date, Citibank has been actively involved in all major

privatization deals, and have advised leading foreign and local corporate

groups. This can be evidenced by the number of transactions undertaken by

Citibank in the recent past. The principal areas in which they advise their

clients are as follows:

Buy-side advisory

Sell-side advisory

Merger transactions

Joint ventures

Privatization of state owned entities

2.2 Credit Rating

Citi group is one of the most reputable banking group in the world

having 1,400 branches around the world. Citi bank came to Pakistan in 1961

and since then it has actively participating in various government projects

and acting as an advisory for its clients in various mergers and acquisitions.

Citi bank has also been providing a huge range of high performance products

to its corporate and personal consumer clients. Currently three very reputable

credit rating agencies have assigned credit ratings to Citi bank based on its

performance and value added services that Citi bank provides to its clients.

Table III-2: Credit Rating of Citi Bank Limited

Rating Agency Credit Rating Assigned Short Term Long Term

Citi bank Standard’s &

Poor’s A-1 + AA +

Moody’s P-1 Aaa Fitch-IBCA F1 + AA +

Source: Banking survey 2008

2.3 Branch Network

Citi bank has a very limited branch network in Pakistan but still the

business done by these limited number of branches is much more than other

banks operating in Pakistan. Citi bank with its small branch and ATM network

is competing well with the biggest banks of Pakistan in terms of doing their

business such as NBP, HBL or MCB etc.

Citi bank has its presence only in the big or metropolitan or what we

call the industrial areas or corporate hubs of the country mainly because of

the product range that it offers i.e. Citi bank is offering more products to the

business sector of the country than to personal consumers. Currently the

city’s in which Citi bank has its presence through its branch and ATM network

include:

Table III- 3: Citi Bank’s Branch and ATM Network

City No: of Branches No: of ATM’s Karachi 15 23 Lahore 12 17 Islamabad 9 13 Rawalpindi 7 11 Faisalabad 5 8 Total 48 72

Source: Citi bank annual report 2008

2.4 HR Practices

Citi bank’s HR policy is devised in such a way that it recruits for fresh

graduates once a year for the OG-2 position apart from this; employees are

also recruited on need basis according to the specific requirements of the

bank. All the employees who are recruited on need basis are experts in their

respective field of department.

Fresh graduates are informed about the job openings through news

paper and through e-mail if the candidate has already dropped his C.V

electronically in their HR department at the head office. Trainings are given to

employees on need or requirement basis. Most of these trainings are given

outside the country at other foreign branches of the bank.

When these trained employees return to Pakistan they in turn give

training to all the concerned employees of Citi bank Pakistan.

Promotion system is based on the performance of the employee. It

generally takes 1-4 years depending on the performance of the employee to

get a promotion.

2.5 Recognized Innovations

Citibank is Pakistan's most innovative commercial and investment

bank, having won more international citations for deals done in Pakistan and

having more landmark transactions to its credit than any other financial

institution. Euro money recognized Citibank as the "Best M & A bank in

Pakistan" in 1999. Citibank's recent notable transactions include:

2009 Citi bank Pakistan awarded “Best Consumer Internet Bank 2009”

by Global Finance.

2008 Citi bank goes live with ATM-generated ‘Mini Credit Card

Statements.

2008 Citi bank Pakistan recognized at the 4th Health & Environment

National Excellence Awards Ceremony and won the Corporate Social

Responsibility award (CSR Award 2008)

1999 Arranged the first local currency future flows securitization

transaction.

1998 First local currency lease rental securitisation.

1998 First local currency securitization backed by Notes Payable from

a Government owned entity.

1997 First foreign currency foreign future currency receivables for

PTCL of USD 250 million.

1996 Successful placement of the largest term finance certificates

issued in the country, resulting in a double-fold increase in market

appetite.

1996 Arranged the Government of Pakistan's highly successful issue

of USD 150 million FRN.

1995 Successfully placed the largest term finance certificate issued in

the country.

1994 Devised the first local currency corporate bond.

1993 Launched Pakistan's first and to date only Euro-convertible

offering.

1992 Successfully structured the first leveraged management buyout.

1991 Pakistan's first ever foreign equity fund.

2.5.1 Advisory Projects

Financial advisor to the National Highway Authority, Government of

Pakistan, in the USD 500 million Islamabad-Peshawar Motorway

project.

Financial advisor to Pakistan Telecommunications Corporation in the

USD 500 million Build-Lease-Transfer lines expansion programme.

Financial advisor to a consortium of investors lead by Midlands

Electricity plc and GE Capital establishing a 585 MW combined cycle

power plant in Pakistan.

3. Faysal Bank Limited

Faysal Bank started operations in Pakistan in 1987, first as a branch

set-up of Faysal Islamic Bank of Bahrain and then in 1995 as a locally

incorporated Pakistani bank under the present name of Faysal Bank Limited.

On January 1, 2002, Al Faysal Investment Bank Limited, another group entity

in Pakistan, merged into Faysal Bank Limited which resulted in a larger,

stronger and much more versatile institution.

Faysal Bank Limited is a full service banking institution offering

consumer, corporate and investment banking facilities to its customers. The

Bank's widespread and growing network of branches in the four provinces of

the country and Azad Kashmir, together with its corporate offices in major

cities, provides efficient services in an effective manner. The majority share

holding of Faysal Bank Limited is held by Ithmaar Bank B.S.C an investment

bank listed in Bahrain.

3.1 Products and Services Offered By Faysal Bank Limited

Faysal Bank Limited offers its products in four major categories which

are than further divided in sub-categories.

3.1.1 Deposit Accounts

3.1.1.1 Faysal Savings

Faysal savings is specially designed to cater the hard earned savings

of its clients. Faysal saving account has the following features:

Account can be opened with an initial deposit of Rs. 10,000/.

Profit is calculated on monthly minimum balance.

Profit is paid on six monthly bases.

Access to account through on-line banking at all Faysal Bank

branches across Pakistan.

Easy access through cheque book and Pocketmate Visa Debit card.

Pocketmate can be used at more than a million ATMs and 29 million

point of sale (POS) terminals around the world.

Table III-4: Faysal Saving Account Profit Calculation on Minimum Monthly Balance

Saving (Basic) Average Balance Requirement of Rs.10,000

Marketing Rate

Rs. 0 to Rs. 25,000 5.00% Rs.25,001 to Rs. 100,000 5.00% Rs.100,001 and above 5.00%

Source: Faysal Bank Official Website, July 31st 2009

3.1.1.2 Faysal Sahulat

Faysal Sahulat is a transactional account specially designed for

individuals and business customers who seek instant access to their funds at

any Faysal Bank branch in Pakistan. Faysal Sahulat has the following

features:

Account can be opened with an initial deposit of Rs. 5,000.

Free access to account through online banking at all Faysal Bank

branches countrywide.

Unlimited transaction facilities.

On maintaining a monthly average balance of Rs. 500,000 or more

following additional facilities are provided, free of cost.

o Cheque Book.

o Pay orders

o Small Locker (subject to availability)

o Visa ATM/Debit Card

o Statement of account

Easy access through cheque book and Pocketmate Visa Debit card.

Pocketmate can be used at more than a million ATMs and 29 million

point of sale (POS) terminals around the world.

3.1.1.3 Rozana Munafa Plus

Rozana Munafa Plus is a savings account in which profit is calculated

on day end balance, and is disbursed on a monthly basis. This account has

the following features:

Account opening and minimum balance requirement of Rs. 100,000

for individual customers and Rs. 500,000 for corporate customers.

Profit is calculated on daily balance basis.

Profit is disbursed on monthly basis.

Access to account through online banking at all Faysal Bank branches

countrywide.

Easy access through cheque book and Pocketmate Visa Debit card.

Pocketmate can be used at more than a million ATMs and 29 million

point of sale (POS) terminals around the world.

Zakat and Govt. taxes are applicable as per law

Table III-5: Rozana Munafa Plus Account Profit Calculations on Daily Balance

Rozana Munafa Plus (Individual) Average Balance Requirement of Rs.100,000

Marketing Rate

Rs. 0 to Rs. 100,000 5.00% Rs. 100,001 to Rs. 200,000 5.00% Rs. 200,001 to Rs. 500,000 5.00% Rs. 500,001 to 3,000,000 5.00% Rs. 3,000,001 to Rs 10,000,000 5.00% Rs. 10,000,001 and above 5.00%

Source: Faysal Bank Official Website, July 31st 2009

3.1.1.4 Basic Banking Account

As per SBP prudential communicated via BPD circular No.30, Faysal

Bank has introduced the Basic Banking Account (BBA) to cater the needs of

low income groups having the following features.

Account can be opened with Rs. 1000/.

No requirement for maintaining a minimum balance

Maximum of two free deposits and withdrawals through

counters/clearing are allowed in a month.

Unlimited transaction facility through ATMs.

Free of charge statement of account for customers once a year. In

case more statements are required than standard charges would be

applicable.

Free ATM transactions on Faysal Bank ATM machines

Dormant accounts with nil balance for 6 months to be closed as per procedure.

3.1.1.5 Faysal Moavin Savings Account

Faysal Moavin is a Savings account made for genuine individual and

unique savers with specific and special needs. Faysal Moavin offers the

perfect combination of savings account matched with the flexibility of a

current account. Faysal Moavin has the following features:

Account can be opened with an initial deposit of Rs. 20,000/

Profit is calculated on daily balance basis.

Profit is paid on monthly basis.

Tiered profit structure providing an incentive to save more.

Table III-6: Faysal Moavin Account Profit Calculation on Daily Balance

Faysal Moavin Average Balance Requirement of Rs.20,000

Marketing Rate

Rs. 0 to Rs. 500,000 5.00% Rs 500,001 to Rs.1,000,000 5.50% Rs.1,000,001 to Rs.1,500,000 6.75% Rs. 1,500,001 to Rs.5,000,000 7.50% Rs. 5,000,001 to and above 5.00%

Source: Faysal Bank Official Website, July 31st 2009

3.1.1.6 Faysal Premium

Faysal Premium is a savings account specially designed for high value

deposits with attractive profit rates. Faysal premium is specially designed for

the upper class, industrial and corporate customers with the following

features:

Account can be opened with an initial deposit of Rs. 5 million.

Profit is calculated on daily balance basis.

Profit is paid on monthly basis.

Access to account through on-line banking at all Faysal Bank

branches across Pakistan.

Easy access through cheque book and Pocketmate Visa Debit card.

Zakat and Govt. taxes are applicable as per law.

Table III-7: Faysal Premium Account Profit Calculated on Daily Balance

Faysal Premium (Ind. &

Corporate) Average Balance

Requirement of Rs.5M

Marketing Rate

Rs. 0 to Rs. 5,000,000 5.00%

Rs 5,000,001 to Rs.10,000,000 5.00%

Rs.10,000,001 to Rs.25,000,000 5.00%

Rs. 25,000,001 to Rs. 50,000,000 5.00%

Rs. 50,000,001 to Rs. 125,000,000 5.00%

Rs. 125,000,001 & above 5.50%

Source: Faysal Bank Official Website, July 31st 2009

3.1.1.7 Faysal Izafa

Faysal Bank realizes that every customer's financial needs are

different. As a result, the Faysal Izafa Term Deposit is designed to provide

individuals and corporate customers an opportunity to grow their money

securely and earn attractive profits. The Faysal Izafa account has the

following features:

Minimum required investment as low as Rs. 25,000/.

Tenure from one year to five years.

Annual, six monthly and monthly profit payment option available.

Financing facility of up to 90% of the invested amount.

First cheque book is provided free on investment of Rs. 300,000/ or

more.

Access to profit through online banking at all Faysal Bank branches

and more than 3,000 ATMs countrywide.

Table III-8: Faysal Izafa Account Profit Calculated on Tiers Basis

Account Type Profit rates Individual and Corporate 7 day 0.25%

Tiers Up to Rs.24,999

Rs.25,000 & above

1 month 1.75% 7.00% 2 months 2.00% 7.25% 3 month 3.50% 7.50% 6 months 4.00% 8.00% 6 months monthly payout

3.97% 7.85%

1 Year 6.00% 10.75% 1 Year monthly payout 5.50% 10.25% 2 to 5 years 6.00% 10.50% 2 to 5 years monthly payout

5.50% 10.00%

Source: Faysal Bank Official Website, July 31st 2009

3.1.1.8 Faysal Mahfooz Sarmaya

Faysal Bank endeavors to build and strengthen customer relationships

by providing innovative banking products and services. To provide

convenience and value to customers with foreign currency related needs,

Faysal Bank's Mahfooz Sarmaya foreign currency account offers the

following attractive features:

Account can be opened in three major international currencies: US

Dollars, Pound Sterling and Euro.

Minimum balance for opening Mahfooz Sarmaya is 1000 units of the

currency in which the account is opened.

Account can be opened in any of the following types:

o Savings Account

o Term Deposit Account

o Current Account

With Mahfooz Sarmaya Account, the customer becomes eligible for

Pak Rupee financing facility of up to 75 % of the deposit in your

account at very competitive financing rate.

With Mahfooz Sarmaya Account, you automatically qualify for special

rates for car and home financing.

Profit payment is subject to withholding tax as per rules.

3.1.1.9 FCY Saving Plus

FCY Saving Plus is a new foreign currency savings account with

attractive profit rates where customers get their profit on a monthly basis.

This account comes with the following features:

Account can be opened in US Dollars, Pound Sterling and Euro

currency.

Minimum balance for opening FCY Saving Plus is 500 units of the

currency in which the account is opened.

Profit is calculated on monthly average balance.

Profit is disbursed on monthly basis.

Tiered profit structure providing an incentive to save more.

No FCY cash deposit charges

On maintaining the monthly average balance equivalent to USD

50,000 or above, the following additional facilities are provided.

o Free online banking

o Priority Banking

o Borrowing in PKR up to 90% of FCY

o Preferential rates on consumer finance

Govt. taxes and regulatory conditions (including FE25 regulations) are

applicable as per law.

3.1.2 Consumer Loans

Faysal bank offers its clients with three types of consumer loans specially

designed to meet their specific needs.

3.1.2.1 Faysal Car Finance

Faysal bank offers car finance facility to its customers on the basis of specific

criteria having the following features.

Product Features

Vehicle Type : Locally manufactured

Lease Term : up to 5 Years

Markup Rate : Variable (12Mths Kibor+5% - Annually revised)

Equity : Minimum 20%

Eligibility Criteria

Age : 21 years to 55 years

Service/Business age : 2 years of corporate employment/3 years of

established business

Qualifying income : 70 : 30 (i.e. Max installment not higher that

30% of your net disposable income which

includes all credit commitments including FBL

Car Rental)

Insurance:

:

Comprehensive Insurance inclusive at nominal

rates

3.1.2.2 House Finance

Faysal bank offers house finance facility to its customers for buying a

new home, building a new home, buy a land plus do construction on it and

remodeling or renovation of existing home. This loan is provided on the basis

of following criteria:

Minimum Financing : Rs.500,000/- or maximum 70% of the property

value (50% in renovation)

Markup Rate : Variable (12Mths Kibor+5% - Annually revised)

Repayment : Equal monthly installment

Disbursement : In single tranche,

In tranches against approved amount,

In tranches against approved amount, first tranche

will not be more than 50% of the sanctioned facility

limit or 50% of land value whichever is lower,

In pre-agreed installment against approved amount.

3.1.2.3 Faysal Finance

Faysal finance is the loan that people take from a bank against

collateral.

Product Features

Maximum Financing : Rs.500,000/- (up to Rs.1 million in secured cases –

residential property)

Repayment : Equal monthly installment

Repayment Period : 3 Months to 60 Months

Markup Rate : Fixed (Variable in secured cases)

Residency : Pakistani / NRPs

Collateral : Liquid / Residential Property

Financing Margin : 90% & 70% (for Liquid / Residential Property)

Income Clubbing : Facility of clubbing of spouse income is available

3.1.3 Corporate and Investment Products

3.1.3.1 Corporate Financing

Faysal Bank Limited is fully geared to meet the changing economic

challenges present in Pakistan. The bank is striving to build meaningful

relationships with the customers and become partners in their growth and

progress by acting as financial advisors and consultants as well as financiers.

The Corporate Finance Group extends both short and long term financing

facilities designed to fulfill the individual need of each corporate customer.

3.1.3.2 SME Financing

Small and Medium Enterprise (SME) unit of the Bank is geared

towards catering to the banking requirements of small to medium businesses

in a timely and therefore cost effective manner. All the branches of Faysal

Bank are equipped to speedily attend incoming financing requests from

SMEs.

3.1.3.3 Trade Financing

Faysal Bank has established a strong presence globally in Trade

Financing through its network, affiliates and correspondents. The Bank has

conveniently maintained relationships with major banks in the international

financial market and continues to develop new ones wherever needed. The

trade finance services include a full range of import, export and guarantee

products, thus offering tailor-made solution to fit the individual need of each

customer.

3.1.3.4 Treasury and Capital Markets

Faysal Bank's Treasury is one of the leading market makers in quoting

competitive prices in all major currencies and providing dynamic corporate

and institutional marketing teams with up-to-date market information. Faysal

Bank's treasury team strives to satisfy the customer's financial needs in a

timely and a flawless manner. The bank has earned immaculate reputation in

the field of Capital Markets, which is quite evident from its track record and

market share in this area.

3.1.3.5 Investment Banking

Faysal Bank offers the leaders of businesses and institutions,

corporate advisory services and a wide array of tools to help them

accomplish their goals. They advise and facilitate the arrangement of

commercial paper, syndications, mergers, acquisitions and underwriting

arrangements amongst many others. Whether the customers require

financing of a project or managing of investments, the bank can guide them

through the markets and tailor a solution to meet their specific needs.

3.1.3.6 Agriculture Financing

Faysal Bank offers specialized products for the agricultural sector. All

the branches located in agricultural areas of Pakistan are equipped to help

the local farmers improve their yield and methods of farming by offering

timely and affordable modes of financing to suit their needs. Currently 40

branches across Pakistan that are located in agricultural areas of the country

are proving agricultural financing.

Products offered by Faysal Bank under “Faysal Khushaal Kisan

Scheme” include:

Production loans to meet

o Cost of Agricultural Inputs (Seed, Fertilizer, Pesticides etc.), cost of

diesel, labor, storage & transportation and other working capital

requirements of crop farming.

o Input and other working capital requirements involved in orchards /

nurseries, growth of mushroom, vegetables, floriculture etc.

Development loans to finance

o Farm power – Tractors, combine harvesters, thrashers etc

o Farm machinery & equipment - ploughs, cultivators, laser levelers,

processing machinery & tunnel structures etc.

o Farm transport – pickup, trailers & mini trucks etc.

o Farm irrigation - Installation of tube-wells, turbines, power lines &

transformers, sprinklers, drip irrigation systems and Lining /

alignment of water channels etc.

o Land improvement - Land leveling, clearance of jungle and land

reclamation of land etc.

o Godowns & Cold Storage - Cost of construction, machinery and

working capital requirements.

Livestock

o Dairy Farm - Cost of sheds, milking animals, feed & medicine and

other working capital requirements.

o Goat / Sheep & Cattle Farm – Cost of animals sheds, animals,

feed & medicine and other working capital requirements

o Poultry Farming - Cost of poultry sheds, machinery & equipment,

chicks, feed & medicine and other working capital requirements

etc.

o Fish Farming – Cost involved in fish pound, tube-wells, fish seed,

feed & other working capital requirements.

Financial facility for all other purposes as detailed in SBP’s List of eligible

items for Agricultural credit.

3.1.3.7 Cash Management

Faysal Bank's Cash Management department has emerged as one of

the leading cash management solution providers in strategic markets such as

local corporates, multi-national companies, and mid-tier markets. Faysal

Bank's role in these segments span over the entire spectrum of services

including Strategic receivables/payables management, corporate e-banking,

payroll and fund management services, dividend processing, and process re-

engineering. Success of Cash Management services is primarily attributable

to its focus on providing streamlined and customized solution that adds value

to business process of its clients.

3.1.4 Services

3.1.4.1 PocketMate Visa Debit Card

Combining the wide acceptability of a credit card and the thoughtful

prudence of an ATM card, Faysal Bank PocketMate is the most convenient

way to carry cash. There is no more fear of overspending. No more

searching for the nearest ATM. PocketMate Visa Debit Card provides the

customers with the freedom of worldwide acceptability at over 27 million

merchant outlets and as an ATM card operative at all ATMs in Pakistan plus

at over 1 Million ATMs worldwide bearing VISA logo.

Product Features

The PocketMate Visa Debit Card accepted at over 27 million shops

and 1 million Visa ATMs all over the world and at over 40,000

merchant establishments in Pakistan.

PocketMate Visa Debit Card can only be used Electronically, which

means lesser probability of fraudulent attempts on the card.

Each single charge and each withdrawal of cash at ATM made using

PocketMate is clearly itemized on the bank statement enabling the

customer to check the current status of the account.

PocketMate also gives up to 3 supplementary cards issued against

one primary card. All supplementary cardholders will be able to

conduct ATM or Debit transactions within the limits of the primary card

account.

Report for the lost card at the 24-hour customer care and receive a

new card within a week.

3.1.4.2 Transfer of Funds

Funds can be deposited and cash can be withdrawn from any branch

of Faysal Bank, regardless of which branch your account is in. You need only

to carry your cheque book to make the transaction. Faysal bank offers the

fund transfer facility in two ways:

a. SWIFT Money Transfer

Customers of Faysal Bank can now easily and speedily transfer funds

in foreign currency through the SWIFT system installed at the Bank.

b. Western Union Service

Customers who receive money transfers from overseas through the

Western Union service can now withdraw their funds through any

Faysal Bank branch.

3.2 Credit Rating

Credit rating plays a very important role in determining the success

rate of any financial institution. Credit rating shows how good the bank is in

performing of its operations and how well it conducts its business. Currently

Faysal bank has a credit of:

Medium to Long Term

In medium to long term Faysal bank has "AA" (Double A) rating on the basis

of:

High credit quality.

Protection factors are strong.

Risk is modest but may vary slightly from time to time because of

economic conditions.

Short Term

In the short term Faysal bank has "A-1+" (A-One Plus) rating on the basis of:

Highest certainty of timely payment.

Short-term liquidity, including internal operating factors and / or access

to alternative sources of funds, is outstanding and safety is just below

risk free Government of Pakistan's short-term obligations.

3.3 Branch Network

Faysal Bank Limited has a strong branching network that is growing

bigger and bigger with each passing year. Nineteen new branches were

opened during 2006 bringing the network to 75 branches countrywide. These

branches were opened at strategic locations within centers focusing on small

and medium enterprise and agriculture finance business requirements.

Thirty new branches were opened during 2007 bringing the network to

105 branches and extending the presence of Faysal bank in 28 cities. In

addition 6 sales and service centers were opened for customer convenience

and facilitation at convenient locations in three major cities of the country.

The bank also increased its ATM network to 81 by adding another 31 ATMs

during the year, a few of which are capable of providing real time cash

deposit facility as well.

Ten new branches were opened in 2008 bringing the network to a 115

branches and in 2009 up till now 5 branches are opened bringing the network

to 120 branches in the current date.

Table III-9: Increase in Branch & ATM Network on Yearly Basis

2006 2007 2008 2009 Total Branches 75 30 10 5 120 ATMs 50 31 44 10 135 Source: Faysal bank official website & annual report 2006-07-08

Table III-10: Province Wise Branch Network

Province No: of Branches Sindh 41 Punjab 47 Baluchistan 15 A.J.K 7 N.W.F.P 10 TOTAL 120

Source: Faysal bank official website

3.4 HR Practices

Faysal bank’s HR policy is devised in such a way that it recruits for

fresh graduates twice a year for the OG-2 position apart from this; employees

are also recruited on need basis according to the specific requirements of the

bank. All the employees who are recruited on need basis are experts in their

respective field of department.

Fresh graduates are informed about the job openings through news

paper and through e-mail if the candidate has already dropped his C.V

electronically in their HR department at the head office. Trainings are given to

employees on requirement basis. Currently around 3,000 people are

employed at Faysal bank the division of employees is as follows:

Table III-11: Staff Strength at Faysal Bank

Staff Strength 2008 2007 2006

Permanent 1,579 1,394 1,109

Temporary/on Contract Basis 378 365 354

Outsourced 786 716 606

Total 2,743 2,475 2,069

Source: Faysal bank annual report 2008

4. Comparative Study between Citi Bank Limited and

Faysal Bank Limited

In this part we will compare all the working and product aspects of the

two given banks i.e. Citi bank and Faysal bank in order to determine their

strengths and weaknesses as compared to each other.

4.1 Citi Bank Limited

4.1.1 Strengths

Strengths is something that sets you apart from the rest of the cluster.

The strengths that make Citi bank different from Faysal bank include:

1. Corporate Banking Products

Citi bank mainly provides banking products to the corporate sector of

Pakistan. Many corporate giants perform their financial transactions through

the worldwide network of Citi bank. The major corporate clients include

PTCL, Mobilink, Caltex Petroleum’s, major brokerage houses that are

operating in Pakistan.

2. Citi Bank Credit Cards

Citi bank is providing six types of credit cards to its customers namely;

Citi Gold Credit Card, Citi Silver Credit Card, Citi Mobilink Credit Card, Citi

Caltex Credit Card etc to fulfill the specific requirements of different

individuals. These credit cards come with various discount offers i.e. while

you are spending money you are gaining points and then these free points

can be used to obtain free gift vouchers and discount deals at leading

branded stores of the country.

3. Citi Bank E-Card

Citi bank breaks new ground by introducing for the 1st time in Pakistan

the Citi bank E-card which is the first of its kind card. This credit card is used

to make purchases online in a highly secure manner.

4. Citibank Shaheen Affinity Credit Card

The Citibank-Shaheen Credit Card is the first Affinity Card in Pakistan,

offered exclusively to Pakistan Airforce and Shaheen Foundation personnel.

Out of every rupee spent on a Citibank-Shaheen Credit Card, Citibank will

contribute a percentage to Shaheen foundation and to the welfare of our

Airforce personnel.

5. Security Services in Pakistan

Citibank was the first foreign bank to offer custody services in

Pakistan. They offer a full range of services under their core custody product

with the capability of offering value-added services such as Escrow and

Depository Services.

6. Trade Products

Citi bank offers a wide verity of trade products that includes products

for imports, exports and Citi bank also provides guaranties on behalf of its

clients in various national and international transactions through its huge

branch network across the globe.

7. Merger & Acquisition Advisory

Citibank is the leading provider of financial advisory services in

Pakistan. To date, Citibank has been actively involved in all major

privatization deals, and have advised leading foreign and local corporate

groups.

8. Advisory Projects

Citi bank has participated in various government project as their legal

advisor on financial matters. It has been the financial advisor to the National

Highway Authority, Government of Pakistan, in the USD 500 million

Islamabad-Peshawar Motorway project, financial advisor to Pakistan

Telecommunications Corporation in the USD 500 million Build-Lease-

Transfer lines expansion programme etc.

4.1.2 Weaknesses

1. Consumer Banking Products

Citi bank is offering more products to the corporate sector than to the

general consumer sector; moreover the minimum balance requirement for

the general consumer accounts is much more then offered by other banks in

Pakistan.

2. Branch Network

Citi bank has a very limited branch network expending in only five

major industrial cities of Pakistan.

4.2 Faysal Bank Limited

4.2.1 Strengths

Faysal bank limited has the following strengths when compared to Citi bank:

1. Deposit Accounts

Faysal bank offers a wide range of deposit accounts for the general

public and the minimum balance requirement to maintain these accounts is

lower than that of Citi bank. The major business area for Faysal bank is the

personal consumer.

2. SME Financing

Faysal bank is providing financing facility to the SMEs of the country

thus helping them to progress in their respective industry.

3. Agriculture Finance

Faysal bank is offering a huge range of agricultural finance products to

the farmers of the country including financing for the production and

distribution stage of major crops along with financing for livestock and dairies.

4. Branch Network

Faysal bank has a vast branch network of 120 branches that is

increasing with each passing year and it has sound presence in all the

provinces by having its branches in all major cities of the province.

4.2.2 Weaknesses

1. Corporate Banking Products

Although Faysal bank has a good mix of corporate banking products

but it is much less than the product mix offered by Citi bank and at the same

time these products are also less famous in comparison to Citi banks

corporate products.

2. Credit Cards

Faysal bank has only one product in the name of a credit card and that

is the Faysal bank PocketMate card.

CHAPTER IV OPPORTUNITIES AND THREATS EXPERIENCED BY

CITI BANK AND FAYSAL BANK LIMITED WHILE WORKING IN PAKISTAN

1. Opportunities

Opportunity in the general sense means a good time or set of

circumstances for doing something in one’s favor. Opportunities arise from

outside the organization as a result of any positive change in the economic

conditions of the country and resulting positive change in the particular

industry, national and international change in the market conditions of the

geographical region, change in the government regulations, policy

advantages like tax and other incentives and political conditions of the

country are some of the things that create opportunities or threats for the

foreign and domestic banks depending on the change made in their current

condition i.e. is the change a positive one or a negative one.

Various opportunities are experienced by foreign banks when they

come to Pakistan because of the lenient infrastructure of the Pakistani

banking sector which provides more lucrative outlets for the conduction of the

banking business here in Pakistan. Currently at the moment about eight

foreign banks are operating in Pakistan.

A positive change in the foreign bank regulations created by SBP

results in the creation of strategic windows which intern will results in the

creation of unique market opportunities. These opportunities can then be

grabbed by the foreign banks and will be with the passage of time, converted

to their strengths or weaknesses depending on the market conditions and

how well the bank utilizes the opportunity to boost its market share in the

industry.

1.1. International Economic Conditions

In 2006, GDP in South Asia was expanded at a very rapid pace of

8.2%. The factors contributing to this trend were:

Progress in promoting private sector–led growth

Improved macro-management

Greater integration with the global economy

Loose monetary and fiscal policies and strong remittance inflows

boosted the domestic demand

Back in 2006 these were the economic conditions of South Asia which

resulted in boosting the economy of all Asian countries. Growth in the

progress of private sector created various opportunities for the banking

industry as more loans were demanded both at the small and large scale

level.

These international economic conditions boosted the banking industry

in Pakistan as more loans were demanded both by individuals and by

business people to start or to expand their business as a result of which more

employment opportunities were created at the lower, middle and top level

management. More employment means more bank accounts and a much

more business for the banks since all the top and middle level employees

receive their salaries through their respective bank accounts. In order to

respond to these favorable economic conditions:

1. Citi bank also expended its business in 2006 by opening up five new

branches in Pakistan including Hyderabad, Multan, Jhelum and

Sialkot. As an international and highly reputable bank Citi bank was

able to capture a significant share of the market very soon.

2. During the same time i.e. 2006-07 Faysal bank also expended its

branch network by opening up 30 new branches across the country.

1.2 Bank Reforms

The financial sector reforms play a very important role in the

flourishing of the banking sector of the country. The financial sector reforms

in Pakistan are examined in an overall macroeconomic context because

these reforms are strengthening the capacity of the Central bank to regulate

and supervise the financial sector. When the macroeconomic situation is

better (in 2006-07) the structural reforms are more vigorously pursued and

the SBP achieves autonomy and competence and the financial sector begins

to show some self-evident results.

Pakistan possesses a wide spectrum of financial institutions such as

commercial banks, foreign banks, specialized banks, investment banks and

Islamic banks etc. The banking sector reforms are very lenient in Pakistan

allowing the foreign banks to perform their business with great level of

freedom as compare to other parts of the world where financial sector reform

are very strict.

2. Threats

2.1. International Economic Conditions

GDP in South Asia slowed gradually to a still robust 7.5% in 2007 and

7% in 2008.Factors contributing to this slowdown were:

Weaker external demand, reflecting slower growth in the United States

in 2007

Tighter domestic monetary and fiscal policies and

Tighter international monetary conditions.

The banking and securities industry enters 2009 in an unprecedented

state of turmoil and dislocation. What started as a credit issue in the

subprime niche of the mortgage market has extended to all corners of the

financial services industry, and all corners of the globe. What was a financial

crisis is now a full-blown economic crisis with global impact.

The whole world stands witness to the global financial crisis, which

was an outcome of banks doling out expensive loans to people who were not

able to return them. That lust for quick profits overcame even the strictest of

internal controls. Citibank Pakistan was no exception. The bank is selling its

home and auto finance portfolio. It has stopped issuing personal loans.

Substantial default has marred the credit card business. Five branches have

already been closed and hundreds of employees sacked. Profit before

taxation plunged to just Rs118 million in 2008 from Rs1.13 billion a year ago.

2.2. Political Conditions

Political tensions, both domestic and external, also pose risks and

threats on the operations of foreign banks in Pakistan. The simmering

domestic conflict in the Pakistani Politics and the international tensions on

Pakistan’s borders generate instability and reduce confidence, acting as

drags on growth, particularly of investment. An escalation of these situations

or the emergence of political conflict elsewhere in the region could lead to a

fall in output, with potentially serious consequences for the most vulnerable

members of society.

With the death of Muhtarma Benazir Bhutto Sahiba on 27th December,

2007 the political conditions of Pakistan worsen to its fullest extent huge

damages were made to the private and public property, various government

buildings and institutions were set on fire. Many banks were also set on fire

as a result of which the banking industry was isolated. Huge financial losses

were experienced at the individual citizen level and at the corporate and

government level.

These unstable political and domestic conditions created huge losses

in the banking sector. Banks and especially foreign banks were set on fire

although these banks were insured but the time required by the banks to get

their insurance claims was very long as a result of which these banks were

cut off from the international market for some time period that resulted in

huge financial loss for the banks.

CHAPTER V DISCUSSION

1. General

As the name suggests in this chapter well we discuss about all the

findings of our research. In order to obtain authentic data a survey was

conducted among the concerned sample banks of the research i.e. Citi Bank

limited and Faysal Bank limited. Data was collected from both the banks and

was analyzed to obtain results.

2. Survey Forms

2.1 Critical Analysis

The Pakistani banking sector is one of the most rapid progressing

sector of the country as a result of which more and more foreign banks are

entering in the country each year. Large number of foreign banks in the

country also depicts a positive image of the country in the international

market regarding the growth prospects of the banking industry in the country.

When foreign banks come in Pakistan certain S.W.O.Ts are faced by them.

The opportunities created by the Pakistani banking sector are more than any

other banking sector in this part of the world but at the same time certain

threats are also faced by these banks which are handled by these banks on

the basis of their strengths and weaknesses.

2.2 Purpose of the Survey

The purpose of the study has been to analyze the S.W.O.Ts faced by

foreign banks while working in Pakistan. Investigations are made from two

well known foreign banks, i.e. Citi bank Limited and Faysal bank Limited

regarding the S.W.O.Ts faced by them.

2.3 Scope of the Survey

To address the relevant problems and finding out possible solutions, I

have conducted a survey (through survey forms) among the two banks as

mentioned above, by taking 20 sample interviews from each. The survey

form is divided into five sections. (Results are attached with the Appendix A).

Following is the analysis on key findings of the survey.

3. Key Findings of the Survey

3.1 Citi Bank Limited

Section A: Bank Profile

1. According to the survey the people at Citi bank believe that Citi bank is

offering more products (55 percent) to the corporate sector of the country

then to the personal consumer (45 percent). The products are specially

designed for the corporate giants on the basis of approved SBP criteria

provided for doing trade and business.

Figure V-1: Citi bank product offering

2. The general perception of the Citi bank employees is that, the major

source of inputs for Citi bank is the consumer deposits (80 percent). Few

say (20 percent) that the source for inputs is the equity capital from stock

holders.

Section B: Impact of Global Economic and Financial Crisis

1. According to Citi bank employees the impact of the global economic crisis

on their banking business was seen in the 3rd (50 percent) and 4th quarter

(40 percent) of 2008. Few say that the impact was seen in the 1st quarter

of 2009.

2. In the Pakistani banking industry various banks were affected by the

global economic and financial crisis of 2007-08. At Citi bank people say

that huge impact of the global economic crises was seen on their total

sales turnover (70 percent). A few employees also believe that impact

was also seen on their loan extensions (25 percent).

3. According to the results of the conducted survey, the other areas of the

business that were affected by the financial crisis of 2008 were inability to

obtain new customers (45 percent) and cancelation of various loans (45

percent). The bank was also facing problems in the launch of new

products and services (10 percent).

4. According to the results of the conducted survey, the major issues that

are impacting the company in the current economic environment are the

increase in the cost of investment (4.7 mean average) because of

devaluation of Pakistani currency and financing issues (3.9 mean

average) because there is limited available liquidity in the market. The

employees believe that the bank is also facing increasing problems in

payment delays (3.75 mean average). Few are also in the view of

reduction in demand (3.25 mean average), employee issues (3.1 mean

average) and of overhead costs (2.7 average mean).

Figure V-2: Key Issues Impacting Citi bank

  

0

1

2

3

4

5

Reduction in Demand

Overhead Cost

Financing Issues

Employee Issues

Increse cost of investment

Increase in Payment Delays

Key Issues Impacting in Current Economic Environment

                   

5. According to the survey the area of business through which Citi bank has

responded majorly to global economic crisis is the introduction of new

innovation (5 mean average) i.e. the launch of the 1st ever e-credit card in

Pakistan that will be used for online shopping, with this launch Citi bank

has entered in to new market (4.8 mean average) and to expand its

product portfolio in these economic crises it is looking for additional

sources of financing (4.8 mean average). Few of the employees believe

that the bank is doing downsizing (1.6 mean average) to respond to

current economic crisis because the bank has recently closed its five

branch and a few believe that no changes (1.65 mean average) are

needed in order to respond to the current situations.

Figure V-3: Citi bank Response to Global Economic Crisis

               

0

1

2

3

4

5

6

Citi bank Response to Global Economic Crisis

 

6. All the employees believe that the bank is facing no problem (5 mean

average) in securing credit facilities from other financial institutions.

7. Citi mostly addresses its financial issues mainly by drawing down its

retained earnings (50 percent) or by raising new capital from existing

shareholders (40 percent). A few employees (10 percent) think that the

bank will downsize if the situation deteriorates.

8. According to the results of the survey most of the employees (75 percent)

at Citi bank are hoping for a positive change in the economic outlook of

the country in the next six months but there is a small group (20 percent)

who also believes that the economic conditions will remain unchanged

because positive economic changes are very rare in Pakistan.

9. Despite of the fact that Citi bank has closed its branch in Hyderabad its

employees (100 percent) believe that the bank will continue to do its

operations even in the next year because the bank is a very established

entity and will overcome its problems very soon.

Section C: Government Support

1. According to the survey Citi bank is majorly receiving tax incentives (95

percent) from the Pakistani government that help the bank in its

developmental programs and sometimes government is also providing

trainings (5 percent) to those Citi bank employees who are working as

advisors on major government projects.

2. Majority of employees (70 percent) at Citi bank believe that the

government can provide to cushion against the impact of global economic

crisis by reducing corporate tax for banks. Few also think that the

government should reduce sales tax (30 percent) to help the bank during

the financial crisis.

Section D: Strength Determination

1. According to the survey results Citi bank mostly conducts research about

competitor bank’s products once in a year (65 percent) but it also

conducts market research about other banks products twice in a year (35

percent) when the contender launches a new product or when the their

products are performing exceedingly well.

2. The bank usually revise its loaning policy including its interest rates once

in a year (85 percent) but some time the bank has to revise its policy

twice in a year (15 percent) depending on two things: government change

in the discount rate and change in IRR.

3. According to the survey results mostly Citi banks marketing policy is

based on a combination of its own institutional research (45 percent) and

by looking at the policy of its competitors (35 percent) but some

employees are of the view that the marketing policy is devised on need

based circumstances (20 percent)

4. According to the management at Citi bank, they hire fresh gradates

usually twice a year (60 percent) but because of financial crisis they have

been hiring new employees only once (40 percent) in a year. Hiring of

fresh graduates depending on the growth each year in their banking

network.

5. According to the general perception, Citi bank is giving training to those

employees twice a year (55 percent) who are involved in major

government projects as financial advisors because of the importance of

these projects. Once a year training (45 percent) is given to those

employees who are dealing with the personal consumer group.

Section E: Weaknesses

1. According to the survey result only a few people (20 percent) at Citi bank

believes that there bank has weaknesses when compared to its

competitors in the area of its branch network or access in rural areas. A

large number of employees (80 percent) are in the view that their bank

has no weaknesses.

3.2 Faysal Bank Limited

Section A: Bank Profile

1. According to the survey Faysal bank is offering more products (60

percent) to the personal consumers then to the corporate sector (40

percent) of the country. The products are specially designed for the

various income class consumers to serve their financial needs in the best

possible manner.

2. The general perception of Faysal bank employees is that, the major

source of inputs for Faysal bank are the consumer deposits (90 percent)

for the reason that more products are offered to them and in return more

deposits are obtained. Few (10 percent) say that the source for inputs is

the equity capital from stock holders.

Figure V-4: Faysal bank product offering

Section B: Impact of Global Economic and Financial Crisis

1. According to Faysal bank employees the impact of the global economic

crisis on their banking business was seen in the 3rd (20 percent) and 4th

quarter (30 percent) of 2008 but the impact became very visible in the 1st

quarter of 2009 (45 percent).

2. In the Pakistani banking industry various banks were affected by the

global economic and financial crisis of 2007-08. At Faysal bank people

say that huge impact of the global economic crises was seen on their total

sales turnover (60 percent). A few employees also believe that impact

was also seen on their profit margin (25 percent) and on extensions of

existing loans (15 percent).

3. According to the results of the conducted survey, the other areas of the

business that were affected by the financial crisis of 2008 were inability to

obtain new customers (45 percent) there was no liquidity in the market

and in cancelation of various loans (35 percent). The bank was also

facing problems in the launch of new products and services (20 percent).

4. According to the results of the conducted survey, the major issues that

are impacting the company in the current economic environment are the

increase in the cost of investment (3.9 mean average) because of

devaluation of Pakistani currency and financing issues (3.9 mean

average) because there is limited available liquidity in the market.

Employee issues are also increasing (3.7 mean average). The survey

results also suggest that the bank is facing increasing problems in

reduction in demand (3.25 mean average) for its products, and payment

delays (3.2 mean average). Few are also in the view of overhead costs

(2.85 mean average).

Figure V-5: Key Issues Impacting Faysal bank

                       

00.51

1.52

2.53

3.54

4.5

Reduction in Demand

Overhead Costs

Financing Issues

Employee Issues

Increase in Cost of 

Investment

Increase Payment Delays

Key Issues Impacting in Current Economic Envoronment

 

5. According to the survey the area of business through which Faysal bank

has responded majorly to global economic crisis is the exploration of new

markets (4.2 mean average) so that the bank can obtain new and

lucrative means for expending its product range and to expand its product

portfolio in these economic crises it is looking for additional sources of

financing (3.85 mean average) but at the same time it wants to keep its

investments lower (3.5 mean average) in the new markets. The bank is

also trying to respond to the financial crisis by trying to introduce

innovation in the market (3.25). Other employees believe that in response

to the crises the bank has lowered its service costs (2.75 mean average)

and service volume (2.45) on temporary basis. Few think that the bank

needs not to do downsizing (0.35) nor does it needs a change (0.8 mean

average) in the conduction of its operation.

Figure V-6: Faysal bank Response to Global Economic Crisis

00.51

1.52

2.53

3.54

4.5

Faysal bank Response to Global Economic Crises

6. All the employees believe that the bank is facing no problem (5 mean

average) in securing credit facilities from other financial institutions.

7. Faysal bank addresses its financial issues mainly by drawing down its

retained earnings (50 percent) or by raising new capital from existing

shareholders (45 percent). A few employees (5percent) think that the

bank will resort to other sources such as microfinance and lease etc.

8. According to the results of the survey most of the employees (75 percent)

at Faysal bank are hoping for a positive change in the economic outlook

for the next six months and there is a small group (15 percent) who also

believes that there will be new opportunities in the market in the future yet

some employees (10 percent) believe that the economic conditions will

remain unchanged because positive economic changes are very rare in

Pakistan.

9. According to the survey result the management and all the employees

(100 percent) believe that the bank will continue to do its operations in the

next year because the bank is a very established entity and will overcome

its problems really soon.

Section C: Government Support

1. According to the survey Faysal bank is majorly receiving tax incentives

(90 percent) from the Pakistani government that help the bank in its

developmental programs and sometimes government is also providing

trainings (10 percent) to their employees.

2. Majority of employees (65 percent) at Citi bank believe that the

government can provide to cushion against the impact of global economic

crisis by reducing corporate tax for banks. Few also think that the

government should reduce sales tax (35 percent) to help the bank during

the financial crisis.

Section D: Strength Determination

1. According to the survey results a large number of employees at Faysal

bank believe that the bank mostly conducts research about competitor

bank’s products once in a year (90 percent).

2. The bank usually revise its loaning policy including its interest rates once

in a year (85 percent) but some time the bank has to revise its policy

twice in a year (15 percent) depending on two things: government change

in the discount rate and change in IRR.

3. According to the survey results mostly Citi banks marketing policy is

based on need based circumstances (50 percent) i.e. whenever there is a

need to bring a change in its marketing policy they do it. Another group

pointed out that the marketing policy of Faysal bank is based on the

combination of its own institutional research (25 percent) and by looking

at the policy of its competitors (25 percent).

4. According to the management at Citi bank, they hire fresh gradates

usually once in a year (90 percent) but a small group (10 percent)

believes that the bank hires fresh graduates twice in a year.

5. According to the survey results, Faysal bank gives training to its

employees usually once in a year (60 percent). Another group believes

that trainings are given twice in a year (35 percent) depending on how

quickly the employees are able to absorb their training and put that into

implementation.

Section E: Weaknesses

1. According to the survey result only a few people (25 percent) at Faysal

bank believes that there bank has some weaknesses when compared to

its but a large number of employees (80 percent) are in the view that their

bank has no weaknesses.

CHAPTER VI CONCLUSIONS

It has been concluded from the under considered study that:

1. The Pakistani banking sector is a very flourishing financial sector which is

evident from the number of foreign banks that come to Pakistan each

year.

2. Banking sector reforms are very lenient here which attract more foreign

bank in the country.

3. With foreign banks entry the performance of the Pakistani banks also

improves because now the level of competition in the industry increase.

4. Frequent entry of foreign banks in the country depicts a positive and

progressing image of the country’s banking industry in the international

market.

5. The global financial crisis have affected both the foreign and the domestic

bank operating in Pakistan

6. As a result of the financial crisis banks are facing problems in getting new

customers and in the launch of new products because there is a limited

liquidity available in the market. I have analyzed this phenomenon

through underconsidered comparative study of Citi bank and Faysal bank.

7. Citi bank is providing more products to the corporate sector than to the

personal consumer sector of the country.

8. The personal consumer accounts offered by Citi bank have a very high

minimum balance requirement

9. Citi bank is majorly involved in all the big government projects such as the

Islamabad-Peshawar Motorway project (USD 500 million).

10. Citi bank has a very limited branch network in Pakistan and the branches

are in the big industrial cities only because the products are mostly for the

corporate sector.

11. Citi bank breaks new ground by introducing for the 1st time in Pakistan the

Citi bank E-card which is the first of its kind. This credit card is used to

make purchases online in a highly secure manner.

12. The Citibank-Shaheen Credit Card is the first Affinity Card in Pakistan,

offered exclusively to Pakistan Airforce and Shaheen Foundation

personnel.

13. Major issues that are impacting the foreign banks in the current economic

environment are the increase in the cost of investment because of

devaluation of Pakistani currency and financing issues because there is

limited available liquidity in the market

14. Due to financial crisis Citi bank has stopped issuing personal loans.

15. Faysal bank offers a wide range of deposit accounts for the general public

and the minimum balance requirement to maintain these accounts is

lower than that of Citi bank. The major business area for Faysal bank is

the personal consumer.

16. Faysal bank is providing various loan products to SMEs.

17. Faysal banks agriculture portfolio is very strong.

18. Faysal bank’s branch network is increasing with each passing year even

in these financial turmoil conditions Faysal bank has opened 5 new

branches and 10 new ATM point across the country

19. The credit card portfolio of Faysal bank is very weak as compare to other

financial institutions of the country.

20. In this study I’ve analyzed the existing potential of Citi bank (Model

foreign bank) and Faysal bank (Model domestic bank). Major

methodology tools used for this study are comparative study of both

banks and a series of structured interviews (sample id provided with

Appendix-A). With the help of above tools, S.W.O.T analysis was

employed and results were obtained.

21. Through the study I’ve come to the conclusion that Citi bank as compare

to Faysal bank, failed to perform upto a significant level which was set

when Citi came to Pakistan. There were many underlying factors involved

in this failure, but my study suggests that due to global financial crisis

those banks who have foreign roots struck more than those operating in

Pakistan as domestic banks. Furthermore the 1st hypothesis that Citi bank

in the capacity of foreign bank failed to perform under severe liquidity

crisis is proved correct.

22. Faysal being a domestic player avoids this liquidity problem thus

performed upto the mark. The underconsidered study has also revealed

the same results. Furthermore the 2nd hypothesis that Faysal bank in the

capacity of a domestic financial institution has performed well under

severe liquidity crunch is proved correct.

23. Key findings are described in chapter # 5 titled “Discussion”.

CHAPTER VII RECOMMENDATION

These recommendations are derived from the conclusions:

1. The government of Pakistan should try to take steps in order to stabilize

the financial sector by providing financial assistance to the banks.

2. Citi bank should increase its personal consumer portfolio.

3. Citi bank should reduce the opening balance requirement for its personal

consumer account so that the number of personal consumers can be

increased.

4. Citi bank should try to increase its branch network and should provide

access to customers in the rural areas of the country.

5. Citi bank should increase its agricultural product portfolio

6. Faysal bank should try to expand its corporate product portfolio to attract

more corporate clients.

7. Faysal bank must increase its credit card portfolio to increase its

customer base.

8. More foreign banks should be allowed to enter the country.

9. Strengths, weaknesses, opportunities and threats analysis should be

conducted by both banks regularly.

REFRENCES

Bhattacharya, J. (2000) The Role of Foreign Banks in Developing Countries: A Survey of the Evidence, www.econ.iastate (Accessed 2009, January,15)

Burki, A.A., Niazi, G.S.K. (2006) Impact of Financial Reforms on Efficiency of

State-owned, Private and Foreign Banks in Pakistan, LAHORE UNIVERSITY OF MGT SICENCES, CMER WORKING PAPER (06-49)

Claessens, S., Demirguc-Kunt, A. and Huizinga. H (1998) How Does Foreign Entry Affects the Domestic Banking Market, www.worldbank.org, WPS 1900 (WPS 1918) (Accessed 2009, January,16) Claessens, S. and Laeven, L. (2003) What Drives Bank Competition? Some International Evidence, World Bank Policy, Research Working Paper (3113) Detragiache, E. Tressel. T and Gupta. P (2006) Foreign Banks in Poor Countries: Theory and Evidence, IMF WORKING PAPER (WP/06/18) Kazmi, S.H. (1999) Foreign Banks in Pakistan, (Accessed 2009, February,3) http://www.pakistaneconomist.com/database2/cover/c99-20.asp Khalid, A.M. and Hanif, M.N. (2004) Corporate Governance of Banks in

Pakistan, (http://ravi.lums.edu.pk/fcg/images/Ahmed_Khalid%20and%20Nadem_Hanif.pdf) (Accessed 2009, February,12)

Khan, M.Z. (1998) Transforming Banking in Pakistan, Study Commissioned by ABD for RETA, (http://www.adb.org/documents/books/rising_to_the_challenge/pakista n/2-pak-bnk.pdf) (Accessed 2009, January,18) Mian, A. (2003) Foreign, Private Domestic and Government Banks: New Evidence from Emerging Markets, JOURNAL OF BANKING AND FINANCE, 2003. www.citibank.com.pk (2009) Product mix offered by Citi bank (Accessed

2009 , September,17) www.citibank.com.pk (2009) Citi bank Annual report 2008 (Accessed 2009, September,17) www.faysalbank.com (2009) Product mix offered by Faysal bank (Accessed 2009, September,18)

www.faysalbank.com (2009) Faysal bank Annual report 2008 (Accessed 2009, September,18)

APPENDIX-A

Structured Questionnaire

Section-A: Bank Profile

Name of Bank:

Location:

Citi Bank Faysal Bank

1. Where do you primarily market your products & services?

a) Personal Consumer 45% 60% b) Business Investors 55% 40%

2. Where do you source most of your inputs?

a) Deposits 80% 90% b) Non-deposit Borrowings - - c) Equity capital from Stock Holders 20% 10%

Section-B: IMPACT OF GLOBAL ECONOMIC & FINANCIAL

CRISIS

Has your business been affected by the global economic & financial crisis? If yes, please answer the following questions.

3. When was the impact seen on your business? (Select only one).

a) 2nd Quarter 2008 - 5% b) 3rd Quarter 2008 50% 20% c) 4th Quarter 2008 40% 30% d) 1st Quarter 2009 10% 45%

3.a. Please indicate in which areas your business has been affected & magnitude of impact. (Select any one for each area).

a) Total Sales Turnover 70% 60% b) Profit Margin 5% 25% c) Loan Extension 25% 15% d) Average Interest Rate - -

3.b. Other Areas of Business a) New Customers 45% 45% b) New Products & Services Launched 10% 20% c) Cancellation of Loans 45% 35%

4. On a scale of 1 to 5, rank the following key issues impacting your company within the current economic environment (1 being the lowest and 5 being highest)

a) Reduction in Demand 3.25 3.25 b) Overhead Cost 2.7 2.85 c) Financing Issue 3.9 3.9

d) Employee Issue 3.1 3.7 e) Increase in Cost of Investment 4.7 3.9 f) Increase in Payment Delays 3.75 3.2

5. Your bank’s response to the global economic crisis? (Rank 1-5 according to bank’s priority).

a) Lower Services Volume 2.7 2.45 b) Lower Services Costs 2.7 2.75 c) Downsizing 1.6 0.35 d) Introduction of Innovation 5 3.25 e) Lower R&D Expenditure 3.3 3.1 f) Lower Investment 3.4 3.5 g) Increase price of Products & Services 3.4 2.8 h) Explore new Markets 4.8 4.2 i) Search for Additional Sources of

Financing 4.8 3.85

j) No Changes Needed (Business as usual)

1.65 0.8

6. Is your bank facing difficulties in securing credit facilities from other financial institutions?

a) Yes – Local Banks - - b) Yes – International Banks - - c) No 100% 100%

6. a.Your bank’s response to address the financing issues?

a) Draw down retained earnings 50% 50% b) Resort to other

sources(microfinance/lease) - 5%

c) Plan to close if the situation deteriorates

10% -

d) Raise new capital from existing shareholders

40% 45%

e) No action - - 7. What is your view on the economic

outlook for the next 6 months to one year?

a) Positive 75% 75% b) Unchanged 20% 10% c) Worsen - - d) Opportunities (to increase the market

share, shift to new products/services) 5% 15%

8. Where do you perceive your bank to be

in the next year? a) Still in Operation 90% 95% b) Downsize the operations 10% 5% c) Seize operations - - d) Others – Please Specify - -

Section-C: Government Support 9. The government provides various

incentives & financial assistance to assist banks through development programs & stimulus packages. Is your bank currently benefiting from any of the following incentives?

a) Tax Incentive 95% 90% b) Grants - - c) Soft Loans - - d) Training 5% 10%

10. What form of other assistance can the government provide to cushion the impact of global economic crisis?

a) Reduce corporate tax for banks 70% 65% b) Reduce sales tax 30% 35% c) Others – Please Specify - -

Section-D: Strength Determination 11. How often do you conduct research

about other bank’s product in the industry?

a) Once in a year 65% 90% b) Twice in a year 35% 5% c) Thrice in a year - 5% d) Never - -

12. How often do you revise your loaning policy including interest rate and related issues?

a) Once in a year 85% 85% b) Twice in a year 15% 15% c) Thrice in a year - - d) Never - -

13. How do you devise your Marketing policy?

a) By looking at the policy of competitor

35% 25%

b) Based on your own institutional research

45% 25%

c) Based on need based circumstances

20% 50%

14. How often do you hire fresh graduates?

a) Once in a year 60% 90%

b) Twice in a year 40% 5%

c) Thrice in a year - -

d) Never - 5%

15. How often do you train employees in different cadres?

a) Once in a year 45% 60%

b) Twice in a year 55% 35% c) Thrice in a year - 5% d) Never - -