Privatization of Habib Bank Limited

HBL was privatized in 2003 at the price of 22.4bn Rs. It was purchased by AKFED (Aga khan fund for economic development) through a 3 step bidding process involving the notice of interest, actual bidding and the take over process held on 24th of February 2004.

Although HBL was privatized in 1997 if we look back at the process of privatization it was initiated way back in 1997 when government appointed Mr Shaukat Tareen as the president of HBL. He introduced the foreign teams in HBL’s management which was the last effort made by the government in order to restore the HBL’s management system in its proper condition.

This case study mainly focuses on the three main questions:

• What were the factors led to the privatization of HBL?
• What were the major steps planned and taken by HBL’s new administration?
• What ware the effects on the performance of HBL?

Factors

There were loads of factors which led to the privatization of HBL. We are mainly focusing on the performance side of HBL so we are going to discuss the factors effecting the performance and efficiency of HBL.

Over-staffing

We all know that HBL was a governmental institute and over staffing is one of the major problems in government organization. In 1996 the number of employees both clerical and non-clerical in the organization was exceeding 31000. The number of employees in the organization was the major problem in both sectors that is managing the large number of employees and assigning them the tasks, also the profitability falls due the amount of salaries HBL had to pay to the employees. This problem also acted as a main barrier during the privatization.

Political Pressure

Before privatization HBL was highly influenced by the governmental policies as it was the largest financial institute under government control. The economic policies of the country were also affecting the bank’s policies. The problem occurred mainly because of the unstable political situation in Pakistan which was causing the huge fluctuations in governmental policies resulting in the inconsistency of HBl’s policies which led to the inefficient results. The motive of privatization was to make HBL as independent as possible.

These factors sums up to the inefficiency of bank caused mainly by the overstaffing which led to over payment of salaries which in turn decreased the profits as stated in the balance sheets (attachment in Appendix).

Now, coming on to the second aspect of our case study we are going to discuss what were the major steps planned and taken by HBL’s new administration.

Steps Taken by the New Administration

The new administration working under the chairmanship of Mr. Sultan Allana came up with some new ideas and they took really good measures to increase the performance of HBL.

Staff Realization

This step was taken by the administration in order to increase the efficiency and performance of HBL. Before the privatization government introduced the Golden Hand Shake scheme in the annual year 1996-97 which reduced the number of employees by almost 8000 reducing the number to 23000 from 31000. After the takeover process the new administration started the firing process and they gradually sacked off about 7000 employees and brought down the numbers to around 16000. Then in the summers of 2006 the HBL administration sacked off all the non clerical staff which brought down the figures by 2000 to almost 14000. This helps in increasing the profitability of the bank.

Product Diversification

HBL diversified it products that is they introduced the packages like car financing and house leasing. It helped a lot in improving the reputation of HBL and people started to show the interest in HBL’s services which in turn helps in improving the credibility and profitability of HBL which is quite evident from the balance sheets and profit loss accounts.

Other Steps

The other major steps taken by the new administration involves the initiation of call centers also they spent a lot on the renovation of building and structure by providing money to the Habib Trust who still holds the owner ship of all buildings which helped in increasing the attraction factor as it is in human psychology that beauty attracts mind. Also they have made it compulsory for each and every employee even the president himself to take at least 4 days of training each year.

The third major aspect we are going to discuss is the performance side of HBL.

Performance

The privatization of HBL led to the increase in credibility of HBL and the performance also increased and they also gain back the trust of people which they were losing rapidly few years back before privatization.

Conclusion

HBL was privatized at the time when the foreign investment was at large, big firms were investing in Pakistan. In those times privatizing HBL at such a low cost seems bit unfair to the bank but the reputation has risen in past 3 years as well as profitability too. But on the other hand HBL fired off almost 17000 employees in last 11 years increasing unemployment. So we can’t say that the process of privatization was entirely correct or wrong it has both its positive and negative sides but only the time can tell us that was this the right decision or not?

Public Survey

In order to support the facts stated in our case study about the performance of HBL after its privatization, we have done a research based on a questionnaire (attached in appendix) containing 6 questions. We asked 200 students of management and few industry people to express their opinion. We would like to share our findings via this case study.

What do you think happens to HBLs performance after privatization?

During our survey we found out that 72% people thinks that the performance have increased after privatization. Only 8% thinks that it’s going down and 20% people thinks that it is at the same level.

Do you think that HBL was in the state where it should be privatized?

Almost 51% people think that the privatization was done at the right position whereas almost 8% people think that the privatization was at the wrong time and situation and almost 41% people don’t really know about it.

HBL was privatized at the price of 22.4bn Rs. Do you think that the price was?

64% people thinks that the worth charged was much lesser than its actual worth where as 28% people thinks that the worth was more than its actual worth where as 8% are indifferent.

Do you think that the local group would perform better rather than AKFED? (AGA KHAN FUND FOR ECONOMIC DEVOLPMENT)?

According to the public opinion the 33% people think that the local group would perform better where as 37% people differs where as 30% people don’t know about it.

AKFED brings new administration, mainly with foreign experience, do you think that the culture gap would be a problem for them in the future?

About the foreign culture around 30% of people think that the cultural diversification can cause trouble in the future where as 51% people thinks that it would not be a major issue where as 19% people don’t really know about it.

AKFED is a well known global organization. Do you think that it is showing more of corporate governance than any of the local organization?

According to the survey 20% people think that yes AKFED is showing more of corporate governance but 26% don’t think so where as 54% really don’t know about it.