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Cover Story

An interview with Humayun Murad, CEO, Orix Leasing Pakistan

Feb 28 - Mar 05, 2000

"The strength of Orix Leasing Pakistan Limited has been its ability to anticipate change and create new business, based on fresh concept, that go beyond existing framework. The Company is known for its flexibility and providing specialized innovative support across a broad range of financial services. The business philosophy of the Company enabled it to operate successfully and overcome the challenges faced during the year 1998-99 by making necessary adjustments in its business strategy and day to day operations. The volume of business grew by 44 per cent and profit before tax improved by 12 per cent in the year as compared to the year 1997-98. These were the remarks of Humayun Murad, chief executive, Orix Leasing Pakistan Limited while talking to PAGE.

"Machinery and industrial equipment used to account for more than half of our lease disbursement but the share has been declining in recent past. Efforts, to increase business, had started during 1997-98 to make up for the fall by boosting lease of other assets. The result was that in 1998-99 total lease disbursement increased by 44 per cent amounting to over Rs 2 billion — the highest volume ever achieved by the Company. Commercial vehicles and saloon cars accounted for 57 per cent of the total leases underwritten during the year. Financial assistance was provided to 1289 business enterprises, majority of which were small and medium size businesses" said Murad while dilating the revised strategy of the Company.

Declining trend of profit, witnessed in the last two years was also reversed. Profit before tax for the year increased by 12 per cent to Rs 150 million as compared to a profit of Rs 134 million posted for the year 1997-98. The earning per share also improved from Rs 5.16 to Rs 6.48 during this period. These results appear more than impressive if one reviews it in the backdrop of slowdown in economic activity and depressed conditions for investment in the country. Low investment in plant and machinery has a direct bearing on leasing business. On top of this, foreign credit lines almost dried completely due to inability to hedge the exchange rate risk.

According to Murad, "During the year 1998-99 our income from operations increased by about 8 per cent to Rs 905 million. Although 'finance lease' remained our core activity, increasing contribution was made by 'operating lease' contracts and lease of automobiles to individuals. 'Consumer finance' maintained steady growth. At the same time efforts were made to optimize operating costs. Selling, general and administrative cost increased by 6 per cent. This seems to be a modest increase keeping in view the impact of inflation and the increase in expenditure due to expanding business."

"Another important step was to ensure that the lease portfolio of the Company did not impair during the rcessionary environment. Due to rigorous monitoring and stringent credit controls 'infected portfolio' reduced and recoveries remained excellent. Provisions for potential bad leases was about Rs 32 million. The accumulated general provisions amounted to Rs 135 million which was 3.72 of the net exposure on net receivables", Murad added.

While commenting on overall business environment, particularly for the leasing companies, Murad said, "Now we are being regulated by the Securities and Exchange Commission of Pakistan (SECP). The new rules being circulated by the SECP do not contain anything drastically different from the old. Most of the laws are the same but some have been rationalized. Therefore, once they are enforced, operations of leasing companies are expected to improve. I would like to say that the SECP has constantly involved the Leasing Association of Pakistan in its effort to remove impediments. If this consultation process continues one can expect even better working environment in the future. Since leasing companies are the only source of medium term financing, at least for the time being, it necessary to strengthen the leasing sector to play its due role."

Murad did not hesitate in commenting on CBR's efforts in raising the additional taxes but the manner it is being done. He objected the way CBR is trying to increase collection by issuing 'uncalled-for' demand notices. Such notices can only be termed as efforts to raise additional revenues from those who discharge their full tax liability in the best possible manner.

"Leasing sector now has an established market niche and is also capable of meeting the need for medium-term finance in the country. We expect a steady growth in the volume of our business together with greater consolidation of the new products already launched. The clients are also expected to benefit from declining interest rates", Murad concluded.