Apr 20 - 26, 1996

Bank of America Chief

Bank of America was clearly one of the outstanding performers amongst foreign banks in Pakistan this past year. Not only was it one of the only banks that was able to show a gain over the previous year at the pre-tax profits level, it was also one of the few banks who showed a gain in net interest income for the year. It also maintained an exceptionally high level of non-interest income to non-interest expenses, due to both its large proportion of fee income to total revenues as well as its ability to control the growth in its expenses.

In an interview with PAGE, the Country Manager of Bank of America, S. Ali Raza, indeed attributed the bank's good performance despite adverse conditions to its strategy of developing its fee income base. Not only is the Bank exceptionally strong in foreign exchange trading, where it has a good flow of two-way business, but it has developed other useful sources of income as well. For example, the Bank is active in credit-card processing for all non- Citibank cards issued in the country. With the market size estimated at 120,000 cards, 80,000 of which is accounted for by Citibank, leaves B of A with 40,000 and growing, by all signs.

The Bank's major achievements during the year came , however, from its corporate finance and investment banking division. B of A brought to market the first ever TFC, for Packages Ltd, and also originated the concept of an international commercial paper flotation by the National Bank of Pakistan. The proposed deal is an $80 million offering which will be underwritten by Credit Suisse and a consortium of other banks, and will achieve the very important goal of introducing Pakistan risk to non-traditional banks and fund managers and through non traditional financing mechanisms. A very laudable effort, and one which underlines very clearly the useful role that foreign banks are able to play should the opportunities exist.

Mr Ali Raza pointed out that a key point for regulators to look at was the subject of land speculation, where large amounts of unaccounted for funds were being channelled, driving up prices beyond the levels of economic logic. If one considers the huge amounts of idle capital tied up in real estate, and if a portion of those funds were able to be channeled through the official banking system, there would be tremendous gains. Firstly, interest rates would decline as the supply of funds to the financial system would increase by significant amounts. Financing the government's budget deficit would be easier and cheaper due to lower rates and higher taxation revenues. And there would be more money available for lending to productive industrial projects instead of it sitting indly in passive unproductive real estate. The social benefits of having more affordable housing would also be of real consequence.

To curb land speculation though, the first order of business would be to set up a regime to eliminate the normal practice of the official purchase price being significantly below the real purchase price. Eliminating this, and exposing speculators to a higher incidence of taxation for every deal, would reduce the practice and increase the attractiveness of the return from financial assets.

For the coming year, the B of A chief intends to increase the Rupee portion of his bank's deposit base, which is currently 87% in foreign currency. They also have a large fund-raising mandate from WAPDA, which given B of A's track-record for innovative solutions indicates interesting times ahead.