PROFITABILITY OF LEASING SECTOR TO IMPROVE

 

An interview with Mubashir Akhtar, Chairman, Leasing Association of Pakistan and CEO, National Development Leasing Corporation

By SHABBIR H. KAZMI
Feb 28 - Mar 05, 2000

"Leasing sector in Pakistan has been performing well despite slowdown of economic activities over a number of years and paying modest dividend to the shareholders. Efforts to revive the economy and accelerate GDP growth rate, by the present economic managers, will enable the sector to perform even better. I believe that the new leasing rules being introduced by the Securities and Exchange Commission of Pakistan (SECP) are pragmatic. Members of Leasing Association of Pakistan (LAP) appreciate the efforts of SECP to improve regulatory framework. However, LAP is also making efforts to introduce 'self supervisory system' within the sector to make it more vibrant. This will also eliminate malpractices, if any, and unethical competition", said Mubashir Akhtar, Chairman, LAP and the Chief Executive Officer of National Development Leasing Corporation.

Without going into many details of some of the problems being faced by the leasing sector, Mubashir said, "These problems need to be addressed urgently to enable the companies doing core business of leasing to operate effectively and contribute towards industrial development of the country. LAP will be discussing the issues shortly at the relevant quarters. We hope that these issues will be sorted out in the best interest of the leasing sector and the country."

"As the role of private sector investment has increased in different segments of the economy, investors are exploring different modes of financing. With its distinctive tax advantage and speedy approval and disbursement procedure, leasing has become an attractive source of financing as this is a pure Islamic mode of financing. Key indicators of the performance of the leasing companies clearly indicates sustained growth of the sector. The number of LAP members involved in core business of leasing has increased from 35 in 1995 to 40 in 1999. Paid-up capital of these companies has increased from Rs 4.7 billion to Rs 6.8 billion. Similarly, shareholders' equity has increased from Rs 6.7 billion to Rs 10.9 billion during this period. The growth of the sector was despite low GDP growth rate and increasing competition from other financial institutions who had also started underwriting leases or financing long term which is not their sphere. Some of these institutions enjoy the advantage of low cost funds at their disposal", said Mubashir.

Talking about the strength of National Development Leasing Corporation, he said, "Our company has always been particular about the cost and does not underwrite leases below cost. We also evaluate risk cautiously to avoid increase in non-performing portfolio. During 1998-99 we made rigorous efforts to recover overdues and got encouraging results. This has also been appreciated by Pakistan Credit Rating Agency (PACRA) while giving rating for the year 1999 which is a source of strength for our shareholders and lenders."

We have also floated Term Finance Certificates (TFCs) recently worth Rs 500 million having 5 years maturity period. The public offer was over-subscribed by 170 per cent. This indicates the confidence of market in the strength of the Company. Our TFCs have been rated A+ (A Plus) by the PACRA. With the flotation of TFCs the Company has become more comfortable as regards to long-term funds and able to minimize mismatch. Although, NDLC always had an edge of having minimum mismatch due to arrangements of long-term financing from multilateral agencies and local financial institutions", added Mubashir.

"Our employees are our biggest asset and we give special attention to further capitalize this by inducting new Human Resource Policy. At present NDLC can boast of having the best team of professionals at the top and middle management. The superior quality of our managerial skills is supported by the improvement of the financial results of the Company over last couple of years as well as the half yearly results for the period ending December 31, 1999. For the year ending June 30, 1999 profit before tax was Rs 120 million as compared to Rs 78 million for the previous year. Total income dropped from Rs 739 million to Rs 698 million depicting a fall of 5.9 per cent during this period as we remained conscious to get quality business. However, the Company made provision of Rs 29 million for the year 1998-99 as compared to an allocation of Rs 111 million for the previous year. We are committed to further development of the leasing business by intensifying our core activities especially writing Small Ticket leases including motor cars. We are also sure that we will be able to post better results with the turnaround of economy", Mubashir concluded.