Saeed Ahmad: Responsible banking conduct - an imperative for
sustainable growth
Keynote address by Mr Saeed Ahmad, Deputy Governor for Financial Markets, Islamic
Banking & Special Initiatives Cluster at the State Bank of Pakistan, at the Seminar on
"Responsible banking conduct - an imperative for sustainable growth", organized by the
National Institute of Banking & Finance (NIBAF), Islamabad, 22 August 2016.
* * *
1. Mr. Naseer Hasan, Distribution Chief Operating Officer retail banking, Standard Chartered
Bank.
2. Ms. Katie Hoffman, Manager Responsible Inclusive Finance, Social Performance Task
Force.
3. Mr. Irfan Fazli, CEO Benchmatrix Pakistan.
4. Ms. Memoona Afridi, Service Quality Expert.
Distinguished guests, Ladies and gentlemen, I am pleased to be here this morning at the
seminar on "Responsible Banking Conduct- an imperative for sustainable growth". It is one of
the pivotal concepts governing banking in the 21st century, and I know that most of the
audience here has to flag off a journey of joint learning and exploration on a subject that
must have engaged the time and attention of most of you for a while now - which quite aptly
is also the theme of this Seminar. I am delighted to have this opportunity of speaking directly
to the senior management of our banking industry and share the State Bank of Pakistan's
vision regarding Fair Treatment of Customer (FTC) regime in the banking sector, as well as
my own expectations from the Board and the senior management of banks.
At the outset I would say that at the heart of Financial Consumer Protection is the principle of
Responsible Banking Conduct. It is based on the premise that the consumer - that is, a
depositor, saver or borrower - is not just another link in the chain, but the central player in
our marketplace. It is the customer that is the basis for your industry's profits. But at the
same time, it is also the customer who is most affected by irresponsible banking conduct.
The interplay between banks and consumers is, therefore, a key concern for us as a
regulator, as it directly impacts financial stability. When I say that Responsible Banking
Conduct leads to persistent profits and financial stability, I'm talking about a proposition
where the interests of the consumer, banks and the regulator converge.
At the most basic level, responsible banking conduct refers to customers being treated fairly.
Fair Treatment of Customers (FTC) seeks to integrate the design and marketing of banking
products and services, the system of information dissemination, after-sales support and the
grievance redressal mechanisms, so that the customer can be facilitated. The effectiveness
of FTC in banks would depend upon the extent to which it is integrated into their systems. At
the individual level, effective implementation of FTC requires that the FTC goals are
embedded into employees' performance measurement and rewards mechanisms. Ensuring
fair treatment of consumers would also mean that behavioral and cultural changes would
have to be brought in. This cannot be achieved merely by ring-fencing consumer protection
within the bank's compliance function. Instead, the entire bank - right from the Board to the
frontline managers - has to take active responsibility. In order to win the trust of
stakeholders, consumers must not only be treated fairly but also be seen to be treated fairly.
As for the SBP's role in strengthening the FTC regime, we strive to ensure that the banks
work well so that consumers get a fair banking deal. In doing so, we are also cognizant of the
fact that whatever conduct regulations that we issue, must strike the right balance between
allowing the industry to thrive and ensuring that it retains its integrity and delivers what the
consumers expect from it. That is why, we are essentially working on a two-pronged
approach:
1. First, we have set specific "Bare Minimums" in our instructions/regulations, like our
recently issued Product Disclosure Requirements, Consumer Grievance Handling
Mechanisms, Principles on Fairness of Service Charges, and so on.
2. Second, keeping in view the diversity of the "banking conduct," which revolves around the
complete product or service life cycle and the heterogeneity of our industry, it is not possible
for us to issue regulations for each and every aspect of a banking function; much less that
fits every bank's profile.
As a second tier, we are building on the concept of Self Regulation where all banks have
been advised to develop and implement their own Fair Treatment of Consumers (FTC)
Framework, that is duly approved by their Board of Directors. Furthermore, with the intent to
help banks demonstrate FTC, SBP has developed a unique self assessment tool, the
Conduct Assessment Framework (CAF), which helps banks to monitor their state of conduct
against three pre-defined zones. These include the "Red" or the danger zone; "Yellow" the
cautious zone; and "Green," which is the satisfactory zone. I'm glad to share that CAF is a
one of its kind tool, and its Pilot run has gained the attention of some other jurisdictions. I'm
also pleased to note that as per the pilot run's results, most of the banks are in the "Yellow"
zone, which implies that the banks have evaluated themselves fairly. This is certainly a step
in the right direction.
Ladies and gentlemen, I am cognizant of the initiatives taken by the banks in the past to
improve their business conduct. During the year 2015, a total of 738,160 complaints were
registered against the banking industry, out of which 723,201 were directly registered with
the banks and only 2% (very smaller chunk) of the complainants had reached the SBP or the
Banking Ombudsman. The fact that the complainants' issues are being redressed at the first
level, i.e. that of the banks, is an encouraging sign.
However, the banks need to understand that as the SBP follows through on its vision to
gradually step back from directly dealing with customer complaints, the banks' responsibility
in this area will increase manifold.
Let me share with you the areas where we receive the most complains. They include
coercive recovery practices, parallel banking frauds, deceptive sales, inefficient payment and
settlements systems, faulty ATMs are a few irritant for the customers and the regulators
which damage your reputation as custodian of public money. I expect that the banks will put
in place necessary corrective measures and controls so that such incidents and practices are
minimized to a great degree.
The reason I am sharing these complaints with you is that it will allow you to pinpoint the root
cause of the problems and thus adjust any defects in your 4
product design, procedures or delivery channels, wherever required. In addition to satisfying
your customers, this process will also bring good reputation to your organization as well as
the banking sector.
Ladies and gentlemen, customer selection and information asymmetry is of immense
importance when we talk about consumer protection, especially in the context of Pakistan
where literacy rate is quite low. Banking is a business that hinges on trust and long-term
relationships. It is therefore our responsibility to make sure that a customer is offered the
right product and is given the required information that will enable him or her to make an
informed decision. I understand that in a highly competitive and result-oriented environment,
this is not an easy task. However, you must realize that while deceptive sales or adverse
selection may earn you profits in the short term, but it will damage the reputation of your
bank as well as that of the industry at large. I am deeply concerned when I see banks not
following a structured approach for customer selection. The key information provided to
customers is submerged somewhere in the fine print, or the presentations/sales pitches
made to them are so complex that it is often difficult for even educated customers to
understand the risks and make prudent decisions.
I would therefore advise you to follow a simple rule when designing and offering a product:
put yourself into your customers' shoes. Ask yourself if your prospectuses and other
information material would be sufficient for you to make an informed decision. Moreover, you
need to realize that your sales staff are the face of your institution and their conduct has a
direct bearing on the reputation of your bank. I would therefore expect that you would invest
adequate resources on training them, and also put in place mechanisms to monitor their
sales practices. A good reputation is hard to earn, but easy to lose.
Finally, I would like to emphasize upon you that customer empowerment is a part of SBP's
financial inclusion strategy, and the SBP will devote adequate resources to increase
consumer awareness and financial literacy. However, I also expect banks to augment our
efforts in these areas, as they are the primary point-of-contact for a common person with our
industry, and thus are better placed to educate the general public and reinforce the SBP's
efforts to increase financial literacy.
While concluding, I would reiterate the importance of self-regulation in Responsible Banking
Conduct, and the banks must redouble their efforts to ensure that their customers are
adequately informed about various banking products and services. Besides, we expect the
Pakistan Banks' Association to play an active role by sharing its knowledge, expertise and
good practices with the industry. The PBA subcommittee on consumer protection has been
formed with this objective, and I hope that we shall achieve the goals of consumer protection
as set in SBP vision 2020 with the active collaboration of the banking industry.
Let me assure you that the SBP will always welcome your efforts in this direction and that we
will play a supportive role. We will remain in close communication with the industry through
seminars and workshops like these, as well as through formal meetings.
Ladies and gentlemen, I hope that frank, vigorous and thought-provoking discussions during
this seminar would help pave the way for us to achieve the desired objectives. I would like to
express my sincere gratitude to the guest speakers for their participation, and hope that the
audience will have much to learn from their thoughts on the subject.
Thank you all!