The strategy is aimed at achieving greater synergy to remain competitive



Oct 13 - 19, 2003



Previously commercial banking history in Pakistan was usually split in three eras, i.e. pre-nationalization, period under state control and post privatization. However, now financial sector experts split into two eras, i.e. pre and post 9/11 eras. The post 9/11 period appears to be eventful and fast changing the landscape of commercial banking in the country.

The most striking feature has been the massive exit of foreign banks from Pakistan. It not because the country has become un-bankable but foreign banks realizing that they can compete neither with the 5Bs nor with the private banks. Their niche market has been has become too small or taken over, to a large extent, by the domestic banks. Prior to May 28, 1999 around two dozen foreign banks were operating in Pakistan. After the freezing of foreign currency accounts the niche clients were no longer interested maintaining foreign currency accounts. A large number of foreign banks have sold their Pakistan operations to local counterparts. Analysts forecast that the number will reduce to less than half a dozen in the long run.

Due to technology revolution banking is no longer confined to bricks and mortar branches. Some of the foreign banks initially invested in technology to overcome the problem of limited number of branches by offering phone banking and ATMs facilities. However, Muslim Commercial Bank (MCB) and some of the private banks were prompt in following the footprints of their peers.

Besides installation of dedicated ATMs two big networks are operating in the country. These ATMs provide an opportunity to the account holders to withdraw cash from any ATM in the close vicinity. However, very few people know that they pay Rs 15 per when they use transaction the non-dedicated ATM (installed by some other bank).

For quite some time Dr. Ishrat Husain, Governor, State Bank of Pakistan (SBP) has been talking about reducing the number of banks incorporated in Pakistan. His contention has been that instead of a large number of inadequately capitalized banks, the country should have fewer but financially strong banks. Initially private banks were established with Rs 200 million paid-up capital and over the years the requirement has been enhanced to Rs 1,000 million. Some of the banking sector experts believe that the minimum paid-up capital should be enhanced to Rs 2,000 million over the next five years.



Meeting the requirement of enhanced paid-up capital was one of the factors that forced the foreign banks operating in Pakistan to redefine their strategy. Since they has lost their biggest stronghold, foreign currency deposits and limited number of branches has also become a serious constraint most of the smaller banks preferred to sell their Pakistan operations. The foreign banks taking an exit from the country include Bank of America, Emirates Bank International, Societe Generale, Doha Bank, Mashreque Bank and IFIC. ANZ Grindlays was merged with Standard Chartered Bank as a result of global merger.

Many of the large Pakistani groups that did not apply for banking license in nineties realized their mistake. As the SBP made it clear that no more banking licenses would be issued, some of them were keenly looking for an opportunity to takeover the existing banks. As some of the banks ran into problems and the SBP expressed its desire for change of management two transactions took place, change of management of Union Bank, Gulf Commercial Bank, Prudential Bank and Platinum Bank. Al-Meezan Investment Bank acquired Pakistan operations of Societe Generale and the amalgamated entity, Meezan Bank, became the first ever commercial bank offering Riba free banking. Crescent Investment Bank took over Mashreque Bank and Trust Investment Bank acquired Doha Bank. Another important transaction was take over of IFIC by National Developing Leasing Corporation (NDLC).


The ongoing phenomenon of mergers and acquisitions is best explained by a quote from Aquib Memboob Elahi, Head of Research, AKD Securities, We expect the death of commercial banks as we know them and bid welcome to 'financial supermarkets'. The concept of financial super markets is not the brainchild of Aquib. Mohammad Ali Khoja, Chairman, PICIC is the pioneer of this concept. Following this strategy PICIC took over Gulf Commercial Bank, established Leasing Division within PICIC. The DFI now uses the slogan in its advertisements, 'PICIC the Financial Supermarket'. Others following PICIC's strategy are Pak Kuwait Investment Company, Khadim Ali Shah Bukhari & Company and Faysal Bank.



According to the concept of Financial Supermarkets commercial banks plan to offer the complete range of financial services under one umbrella. Till recently, the various services were being offered through independent entities. The concept has already been accepted and yielding positive results. It is expected to further proliferate to achieve greater synergy. More mergers and acquisitions are expected in the days to come.