Moazzam
Introduction:
Habib Bank Ltd was the first commercial bank of Pakistan to be established in Pakistan in 1947. Over the years, the bank has expanded its network and is now ranked as the largest private sector bank with over 1450 branches across the nation. The banking network also boasts about 5 million customer relationships.
With a presence in about 25 countries, subsidiaries in Hong Kong and the United Kingdom, affiliates in Nepal, Kyrgyzstan, Nigeria and Kenya and even representative offices in the likes of China and Iran, Habib Bank Ltd takes pride in being the largest domestic multinational banking network.
Currently, the banking network has expansion plans for potentially profitable markets, which are basically inclusive of important markets on the global front, such as the United Kingdom, United Arab Emirates, Central and Southern Asia, Africa, and the Far East.
Key areas of operations involve product services and offerings in Retail Banking. Habib Bank Limited has the largest corporate Banking portfolio in Pakistan and has an active Investment Baking portfolio. Small and Medium Enterprises and Agriculture lending programs and banking services are offered in not only in urban but also rural areas.
Trade finances and remittances are the focus of HBL’s operations in the UK and GCC, in addition to the regular and basic banking services that cater to the South Asian immigrants and Diaspora in the region.
Habib Bank Limited is rated AA+ for its long term and A1 for its short term. It is the only Pakistani bank to raise its Tier II Capital from external sources.
VISION, MISSION, VALUES:
VISION:
“Enabling people to advance with confidence and success”
MISSION:
“To make our customers prosper, our staff excel and create value for shareholders”
VALUES:
HBL defines its 5 core values as follows:
Excellence:
This is at the core of everything we do. The markets in which we operate are becoming increasingly competitive, giving our customers an abundance of choice. Only through being the very best – in terms of the service we offer, our products and premises – can we hope to be successful and grow
Integrity:
We are the leading bank in Pakistan and our success depends upon trust. Our customers – and society in general – expect us to possess and steadfastly adhere to high moral principles and professional standards.
Customer Focus:
We understand fully the needs of our customers and adapt our products and services to meet these. We always strive to put the satisfaction of our customers first.
Meritocracy:
We believe in giving opportunities and advantages to our employees on the basis of their ability. We believe in rewarding achievement and in providing first-class career opportunities for all.
Progressiveness:
We believe in the advancement of society through the adoption of enlightened working practices, innovative new products and processes, and a spirit of enterprise.
History
HBL was founded by late Mr. Ismail Habib on 25th August, 1942 at Bombay. At that time it was the first Muslim bank to be established in the Indian Sub continent. It was initiated with a capital of Rs 2.5 Million with a mere 12 branch network.
It started its operation in Pakistan in 1947 and moved its head office to Karachi. In 1951, HBL opened its first international branch. It was in Colombo, Sri Lanka. At HBL’s 25th anniversary, Habib Bank Plaza was built in 1972. By 1974, HBL managed to grab a domestic market share of 40% when it was nationalized in the Z.A Bhutto regime. Since then, HBL has dominated the commercial banking market share (55%) through inward remittances and generous loan schemes for small businesses and farmers. Internationally, HBL expanded its network to USA, Singapore, Oman, Belgium, Seychelles, Maldives and Netherlands.
A decade after nationalization, HBL’s annual profit was more than twice the combined profit of all the other commercial banks operating in Pakistan at that time which included United Bank Limited, National Bank of Pakistan, Allied Bank limited and Muslim Commercial Bank. HBL had been a source of rapid economic development in the state since its establishment. It financed various government transport schemes, agricultural schemes and leases over the years and remained the largest and one of the most profitable government entities till its privatization.
HBL presented a blank cheque to Muhammad Ali Jinnah at the time of birth of Pakistan and handled initial financial matters of the state by assuming the status of the state treasury till the state bank came into existence. HBL therefore had been very close to the government of Pakistan since it was established due to these significant reasons.
HBL: pre-privatization
As said earlier, HBL was one of the few largest assets of the government of Pakistan. The organizational culture has evolved over time and did not remain stagnant. After nationalization, HBL has always remained an organization with a very good reputation whether it was from the customer point of view or the employee’s. During Ayub Khan’s Regime HBL gave widespread loans to farmers under the ‘Green Revolution’ and helped boost our agricultural economy. Afterwards, during Junejo’s government, HBL’s expenses were cut down to maximize the profits. Branch extravaganza such as luxurious pool cars and expensive branch interiors were met with restrictions.
Although there had been inefficiency due to the strong unionist activities during 1980s, the takeover of Shaukat Aziz as the president kept things smooth. Shaukat Aziz offered handsome golden handshake packages to the employees of the bank in order to make the old, inefficient and less qualified people to resign. He in a speech, actually gave the statement explicitly that he will make HBL stand far away from inefficiencies by tackling the issue of overstaffing by making people to resign by their own will. He said that he needs people who can actually contribute something unique to HBL. Since HBL was going in huge profits, generous bonuses and handsome salary increments were common and employees were very motivated to work.
HBL was quite customer focused and used to observe the customer focus week every month very enthusiastically. Corporate clients were happy and were given incentives to keep their deposits in HBL. HBL maintained the largest number customer relationships in Pakistan and had strong ties with major corporate investments. In 2001, HBL had a pretax profit of 2.2 Billion rupees and at the end of 2002, it pulled its pretax income to as high as 4.1 Billion rupees despite additional provisions. This is an increase of 84%. Customer deposits grew from Rs 273 billion to Rs 306 billion, an increase of 12 percent, and assets from Rs 333 billion to Rs 403 billion, an increase of 21 percent; Net Revenues increased from Rs 14.1 billion to Rs 16 billion (+ 13%).
The decision of Privatization
On December 29, 2003 the Agha Khan Fund for Economic Development gave the highest bid of Rs 22.409 billion for 51% strategic stake and control over the management in the Habib Bank Limited Network. This is deemed to be the first transaction on this large a scale in the short history of Pakistan’s privatization.
Runner up to the bid was the State of Qatar Supreme Council for Economic Affairs Investment with a hefty offer of Rs 21.99375 billion. The third bidder that had been chosen, that is the Central Insurance Company Limited, did not turn up for the bid. The Privatization Commission approved the bid presented by the AKFED as did the Cabinet Committee on Privatization- Agha Khan Fund for Economic Development was the successful bidder.
On February 26th, 2004 the Privatization Commission (PC) of Pakistan formally handed over the Habib Bank Network to the Agha Khan Fund for Economic Development (AKFED). The Federal Minister for Privatization and Investment Dr Abdul Hafeez Shaikh and senior officers of Finance Division, State Bank of Pakistan and Habib Bank Limited were present on the occasion.
Factors that led to Privatization:
According to official sources, two main factors led to the privatization of the largest and the most lucrative banking network of Pakistan.
Over Staffing:
Like many other government institutions, HBL also had a problem of over staffing. In the year 1996, more than 31000 employees worked for the Habib Bank Limited. This figure is inclusive of both clerical and non clerical staff. This over staffing caused shrinkage of profits because of the salaries and wages payable to staff that was not needed. Paradoxically, while this problem had been one of the root causes of privatization, it also acted as the toughest barrier against the decision of privatization.
Political Pressure
As a magnanimous financial institute that operated under the government of Pakistan, Habib Bank Limited was highly influenced by the policies of the government. The economic policies of Pakistan had a trickledown effect on the policies of the bank and thus the policies of the bank had to be synchronized with the policies of the government. Pakistani politics is an unstable arena, and policies are modified with the advent of every new office bearer. Thus there is lack of consistency. This inconsistency, according to the proponents of the privatization decision led to inefficiency. The intent behind the privatization decision was to make Habib Bank Limited an independent organization so that it could function and perform to its maximum potential.
Privatization of HBL challenged in Supreme Court- Controversy revolving the transaction:
The largest transaction in the history of Pakistan’s privatization has been challenged in the Supreme Court by Dr Akhtar Hassan Khan, who was formerly the Secretary Planning.
Under article 184 (3) of the Constitution, the constitution petition had been filed through the then Senior Vice President Supreme Court Bar Association and Senior Advocate Muhammad Ikram Chaudry, who challenged the transparency of the process of privatization and the decision to sell 51% shares to Agha Khan Fund for Development.
According to information sources, through this petition, filed before the Supreme Court, the petitioner has also raised the fundamental rights as enshrined in articles 3,4,9,14,15,37 and 38.
The petitioner raised his doubts on the selection of the 3 parties, out of the nineteen that had sent their letters of interest. After examination, only three of them were chosen and allowed to bid.
The three selected parties were Agha Khan Fund for Development, Central Insurance Company (which later did not present the bid) and Supreme Council for Economic Affairs and Investment, Doha, Qatar and after the assessment the bids, Agha Khan Fund’s bid was accepted and Cabinet Committee for Privatization approved it on January 4, 2004.
The main controversy, according to the petitioner revolving around this transaction was that the net assets of Habib Bank Limited saw a sharp increase from Rs. 12.8 billion in 2001 to Rs. 19.7 billion in 2002 and to an astounding 23.7 billion in 2003. The then current value-Rs 23.7 billion of the net assets of Habib Bank Limited was greater than the highest bidding which had been presented by Agha Khan Fund for Economic Development, which stood at Rs 22.409 billion.
HBL: Post Privatization
HBL’s performance with respect to the owners might have got better. It might have made a considerable growth over the years but the fact remains that employees and customers are not happy with the new organizational culture HBL has adopted. After Agha Khan’s takeover, 4 nominated personals were made to take charge as the board of directors which were Agha Khan’s own people. Zakir Mehmood, the president was allowed to remain in power.
A few policies were changed in a way which left the employees helpless and made them to face huge problems as a price to pay for their loyalty for the bank. The new administration had a very unfriendly Human resource policy. Old employees were sidelined, new and fresh degree holders were hired and pulled up on the hierarchal ladder. This decreased the number of loyal employees in the organization since the only loyal employees were those who were working for about 20 years or so. Adding to this, medical expense coverage of the employee’s parents was abolished, pensions and staff loans were finished and advance rent facilities were also cancelled. This highly infuriated the employees and pushed them to take a stand against the administration. Employees were discouraged to work with the same zeal and zest by depriving them of the benefits they had been promised. Moreover, employees including NCS and executives were fired without any reason and were paid peanuts. Numerous cases pertaining to this are right now running in the Supreme Court and majority of them are yet dominated by the bank as it can and it does hire influential and expensive advocates such as Dr. Aitzaz Ahsan.
Adding to this, after the incorporation of MYSIS, an online transaction management system, a number of modern day frauds were seen. Employees used to send the money from dormant accounts to some other account in the same bank. At the time of its implementation, employees were not ready for any such change and thus, it took time before they could completely integrate it into their operations.
Despite all these factors, HBL boasts excellent growth when it comes to annual earnings and share prices. But we should not miss the fact that unhappy staff tells us a lot about the future of HBL in Pakistan.
Conclusion:
With the advent of the new administration and management, Habib Bank Limited has gone through a Human Resource crisis. New employees have been taken on board and older ones have been made to leave. There have been sharp pay cuts and fringe benefits that had been previously offered have been reduced. Pensions and staff loans have been abolished altogether, as have deal accounts, advance rent payment benefits and medical facilities for parents been abolished. Inefficient people had been made to resign through golden handshakes, wherein employees were paid a sum of money and asked to retire permanently which were introduced whilst Shaukat Tareen was in office, but have now been replaced with Voluntary suppression scheme which offers lesser benefits. Hierarchy has increased and there is an ever widening gap between the management and the employees. The employees are demoralized because of the new unfriendly Human Resource policies. Despite winning the Best Bank in 2010, Habib Bank Limited has a number of cases pending against it in the Supreme Court, most of which pertain to Human Resources. Approximately 17000 employees have been laid off in the last eleven years. Although the bank’s reputation has risen in the last few years, as have its profits and efficiency, the fact that the bank was privatized at a time when foreign investment was being heavily poured in, and that the value of the net assets as of 2003 superseded the value that the Agha Khan Fund for Economic Development paid for the network by more than Rs 1 billion has raised a lot of questions in the mind of the stakeholders.
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