The future of leasing sector linked with revival of the economy

Dec 18 - 24, 2000

Pak Gulf Leasing was a late entrant in leasing sector. It commenced operations at a time when the country was facing recessionary trend. However, it has exhibited sustainable growth and persistent profitability. This has been mainly due to the vision of the management and the able guidance of Inam Ellahi Sheikh. Ather Syed was appointed Chief Executive Officer of the Company in May 2000.

Though the year 1999-2000 was not very different from the previous years, profitability of financial sector in general and leasing companies in particular remained under pressure due to declining repayment ability of borrowers. However, Pak Gulf registered an increase in net investment in lease portfolio and net income for the year improved by nearly 17 per cent over the previous year.

The Company has been regularly paying dividend to its share holders. The Board of Directors have proposed 9 per cent dividend for the year ending June 30, 2000. It has paid 9.5 per cent dividend for the previous year. Earning per share of Pak Gulf shows a sustainable growth. It was Rs 0.82 as on June 30, 1998, Rs 1.04 as on June 30, 1999 and improved to Rs 1.16 as on June 30, 2000.

The Company has always stressed upon post disbursement monitoring. Recoveries are of extreme significance for any lender and in this connection the performance of Pak Gulf has been satisfactory. The lease portfolio consist of good quality assets with timely rental collections. This enviable performance starts with following stringent selection of clients and prudent risk management. This has enabled the Company to avoid any provisioning against doubtful lease and there is not a single bad debt.

Till early this year Pak Gulf was not a borrower and was depending on its own resources. After June it has acquired credit lines from Askari Commercial Bank and Pak Libya Holding Company as well as from money market. Net investment in lease during the year ending June 30, 2000 was Rs 121.5 million as compared to that of Rs 114 million for the previous year.

According to Ather Syed, "Pak Gulf has plans to diversify its leasing activities and undertake micro leasing business." The competition among the players is increasing with the entry of other financial institutions. Lately, some commercial banks have also entered in the leasing business. Commercial banks, being the primary source, enjoy an advantage. Their cost of fund is lower and are therefore able to underwrite lease at a lower margin. Ather's suggestion is, "If commercial banks wish to underatke leasing business they should either extend credit lines to existing leasing companies or form strategic alliance with them."

Ather also expressed his apprehension regarding shrinking spread. However, he was very optimistic about the outlook of leasing sector. He said, "The efforts of current economic managers have started yielding results. With the disbursement of first tranche under stand-by arrangement with the IMF, bright prospects for concluding long-term funding arrangement and restructuring of Pakistan's external debts, investors confidence is being restored. There has been an improvement in capacity utilization in textile sector. Fertilizer sector needs capacity addition and expansion in PSF sector is already on the cards. textile industry needs to revamp its infrastructure to get ready for the quota free trade. Its needs for funds is urgent because BMR, expansion and new addition must come on line before the year 2003 ends."

As regards meeting to the paid-up capital requirement, Ather said, "While probability of acquisitions may be low, mergers cannot be ruled out. At the same time Securities and Exchange Commission of Pakistan must keep capital market scenario in mind while making any decision. The management of Pak Gulf is monitoring the situation very closely as well as exploring the various options available."