POSITIVE HAPPENINGS INDICATING A MUCH GREATER ROLE OF THE BANKING SECTOR IN FUTURE

Credit to private sector surpassed all targets

AMANULLAH BASHAR
June 26 - July 02, 2006

The merger of the Pakistan operations of Habib Bank AG Zurich with Metropolitan Bank, and Standard Chartered's move to acquire 66% stake in Union Bank probably sometimes next month, are the significant developments in the banking sector of Pakistan.

These noticeable events obviously are taking place on the back of robust growth in the banking sector for the last three years.

These movements could be attributable to the expanded role of the financial sector in the overall economic growth and of course the growing demand for credit from the private sector, which crossed the target of Rs330 billion at Rs344 billion despite ever increasing interest rates in the country.

Muhammad Nasim Khan, Chief Executive and Managing director Sigma Leasing while commenting on the demand growth for credit from private sector remarked "obviously it is a sign of improved state of economy and the market appetite. He however quickly added that the interest rates were increased with a view to check inflationary pressures. No doubt it is done elsewhere in the world, however there are some other measures as well, which can more helpful in controlling the inflation pressures. For example increase economic volume is the strongest measure which helps effectively to check inflation as well as ensure stable interest rates.

Carrying a vast banking experience to his professional career, Nasim Khan through did not categorically opposed the mechanism of interest rate to control the inflation, yet his leanings were apparently towards low interest rates which he pleaded provide fuel to enhance economic volumes.

Actually, growing role of the financial sector in Pakistan is a positive sign towards a gradual economic stability strongly indicated by our GDP growth, which marked an impressive landmark of 8.2 percent and subsequently 6.5 percent later on.

Actually, it is the financial charges, which either provide enabling or disabling environment for the elements, which are instrumental and have far reaching impact in economic growth.

Elaborating his point of view, Nasim cited the example of manufacturing sector, which has to face an increased cost of production in case of higher interest rates. One thing he especially referred was the fact that whether the interest rate or financial charges are on the lower side or in the higher bracket, invariably they are passed onto the consumers. One of the most important points which, he said he would like to refer here is the increase in cost of production due to increase in financial charges which he thought helps no one. In fact, it renders your products

Un-competitive at the export front. It is not advisable in any case to lose your hard-earned export market due to higher financial charges or interest rates. Similarly, the higher interest rates are feared to gradually hit the visible momentum of growth of the consumer market at home front, he observed.

Talking about the role of leasing sector, he said that currently, it is providing substantial financial support in the areas like automobile, import of textile machinery and other engineering sector, investment in textile industry, garment, knitting and embroidery sectors etc. the impressive performance of the leasing sector is reflected in the fact that it is operating almost at 100 percent recovery rate wile the outstanding advances are estimated around Rs75 billion.

Besides automobile industry, another significant area, which has enormous potential for the consumer banking in Pakistan, is the house financing and construction industry, which provides fuel to another 40 down stream industries or the sub-sectors. One should always keep on he back of his mind that like auto sector, housing sector is another area which has an ample scope to attract foreign investment at a massive scale provided a smooth playing field is provided both to the investors as well as the consumers in terms of affordable interest rates or financial charges, he said with a sense of authority as a senior banker.

SIGMA Chief foresees a further growth in demand for credit from the private sector in the years to come especially with the phasing out of the public sector role from the economic scene of the country.

UNION BANK

Standard Chartered Bank has completed due diligence for Acquisition of 66 per cent stakes in the Union Bank. It is said that the two entities are fairly matched in terms of assets, equity and number of branches.

AG ZURICH

Metropolitan Bank announced an extra-ordinary general meeting on July 13th, to approve the amalgamation and merger of the Pakistan operations of Habib bank AG Zurich and Metropolitan Bank.

Metropolitan bank has 208million shares with a net worth of PKR 5.9billion. In contrast AG Zurich, being a private bank, has no current paid-up capital, but instead a single head-office capital account, which had a balance of PKR 2.8bn at Dec 2005.

Post merger, total number of shares should be 301million - considering the Habib Bank AG Zurich Head office capital will be 'paid' 93million worth of shares of METBK.

BANK BALANCE SHEET

AG Zurich Head -office

Capital account

2,142

Number of shares

92.5

Total Equity

2,813

Metropolitan Bank

Paid-up cap

2,080

Number of shares

208

Shareholder's Equity

5,959

Merged Entity

 

Paid-up capital estimate

5,098

Number of shares

301

Shareholder's Equity estimate

8,772

At current levels, 92.5million shares of Metropolitan bank are worth PKR 6.105bn; the Shareholders equity of AG Zurich is at PKR 2.813billion.

The core banking operations and LCs that forms the backbone of Metropolitan Bank's current profitability.