Higher mark-up rates, double-digit inflation: Major banks to start downsizing

[Naveed Yaseen]

By Nauman Tasleem
LAHORE: Major banks of the country are planning to downsize owing to financial crisis, decline in consumer financing and overwhelming financial burdens, the banking sources told Daily Times on Friday.

The downsizing is expected to start in the beginning of next year and the banks have planned to offer different schemes to their employees for leaving the office. Under the scheme, the employees would be paid lump sum amount before they are laid off. The scheme is for the regular employees only and the contractual employees would not have any part in the scheme.

A number of banks have already banned new hiring and are adjusting their personnel of consumer finance in other departments. However, those banks that could not adjust the employees in other departments are asking the employees to quit. Recently, a couple of banks have decreased the number of their employees. The majority of the employees who are laid off are from the consumer banking department.

"The consumer banking has suffered badly due to increase in mark-up rates as majority of banks have tightened the conditions for obtaining auto loans, home finance, personal loans and credit cards," said a banker Rana Atif Mehmood. "Some of the banks closed down their consumer financing departments while a few adjusted their employees," he informed. The banks are reluctant to issue fresh loans due to liquidity crunch while the consumers are also not interested due to higher mark-up rates along with double-digit inflation," Mehmood added.

The growth of consumer loans has shown a negative trend in 2007-08. According to State Bank of Pakistan, till June 21 2008, consumer loan remained Rs 17 billion during 10 months of FY07-08 compared to a growth of 13 percent during the same period last year. Within the consumer financing, highest share was in personal loans at 39 percent followed by car financing 30 percent, housing loans 18 percent, and credit cards at 12 percent at end April 2008.

The bankers said that since June 2008, the interest rates have been increased thereby reducing recovery, as Non-Performing Loans (NPL) have increased. The SBP report on NPL says that till September 30 2008, the NPLs increased by around Rs 20 billion. The NPLs till September 30 2008 stood at Rs 60.93 billion.

Another senior banker, while seeking anonymity, said that the banks are not going to lay off their employees in the month of December, as they have to achieve targets of maximum deposits. Banks' closings are made during the month of December and having maximum deposits is considered a positive point. "The lay off schemes would be for older people, who are no more productive for the banks," he informed. He said that majority of the employees would be from the lower ranks, however, employees from higher rank would also be asked to opt for the scheme.

http://www.dailytimes.com.pk/default.asp...2008_pg5_3