With excess liquidity in commercial banks and other
financial institutions, thereby entered into the leasing sector and made
aiming to earn better revenues in the declining interest rate scenario,
the competition among the players tougher. Though, the leasing companies
are better equipped to beat the competition on account of their being
tax efficient the enhanced competition may cause reduction in profit.
Saying this much, I would like to caution that they must remain within
their expertise and professionalism and try to avoid ending up the fate
met by some other financial institutions who ventured into commercial
banking activity in the past. The financial institutions must abide by
the prime mandate and should not enter those areas which does not fall
in the core activity. The past experience tells us that they do cause
some problems for the existing players but ultimately emerged the
The declining interest scenario is very positive for
the borrowers, but growing competition and shrinking spread force the
players to compromise on the quality of assets, which in turn may lead
to higher provisioning and lower return to investors. As such the size
of pie has remained more or less the same over the last couple of years.
Leasing companies have found new vistas in the shape of consumer leasing
but that has resulted in higher operating expenses. Suffice to say, I am
confident, if the new government is able to purse investment friendly
policies, the demand for capital investment by the private sector is
expected to improve further.
In the recent past the largest percentage of the
credit demand has come from textiles and garment sector. Due to the past
experience, financial institutions do not feel comfortable in enhancing
their exposure in the textile sector. One of the factors causing
concerns is the ability of Pakistan's textile sector to meet the
challenge after textile quota is completely phased out by December 31,
2004. As opposed to this, credit demand by other sectors has not
increased. However, there are indications that capacity utilization in
many sectors has improved and shortly they will have to undertake BMR
and expansion. If this becomes reality, companies undertaking leasing as
core business, will be better positioned to meet the growing demand for
Enhanced paid-up capital and flotation of term
finance certificates (TFCs) has enabled the leasing companies to
overcome mismatch of funds to a large extent. I have been saying
repeatedly that leasing companies are the only source of medium-term
financing. With the shift from labour intensive to capital intensive
manufacturing units and growing demand of funds by the SMEs, leasing
companies have been forced to change their marketing strategy. There has
been a slow but gradual shift from financial lease to operating lease.
Consumer leasing is also growing at substantial rate.
Since most of the leasing companies have been
catering to the corporate clients, they do not have sufficient
infrastructure to undertake consumer leasing at a massive scale. To
overcome this weakness some strategy has to be developed. One such
alternate is that some mediators/special purpose vehicles are developed.
These mediators may facilitate the prospective leasees through the
leasing companies and also share the responsibility of disbursement and
collection. The experience of leasing to corporate employees, in my
opinion, was the first step in this direction. The success provides an
incentive to include others — employed and/or self-employed — who
have stable monthly income.
I am confident that if leasing sector managed to
perform better, despite adverse external factors affecting the economy,
the outlook for year 2003 looks even more promising. The commitment and
vision of economic managers has helped in improving economic
fundamentals. Many entrepreneurs who were seeking migration to other
countries are now forced to find comfort in Pakistan after September 11,
2001 and intend to participate in investing in Pakistan. There are
visible signs of revival of the economy.
To conclude, I will repeat the often repeated saying
that the country has enormous potential. It is also recognized by the
international financial institutions. However, the prevailing perception
about Pakistan is contrary to the realities. My belief is also supported
by the 3.6% GDP growth rate achieved for the year 2001-2002. Pakistan
has been able to overcome most of the negative factors, foreign exchange
reserves being at the top. Now it is the time to work even harder to
ensure trickle down of the benefits to masses.