BOP among many notable beneficiaries

KHALID BUTT, Bureau Chief, Lahore
Oct 23 - Nov 05, 2006

Foreign Investment in the Pakistani banking sector has resulted in a general upsurge and mergers of the banks, according to an extensive PAGE survey. The Banking sector in Pakistan was suffering from a very big crisis in mid 90's and particularly in 1996, when the banking system was on the verge of a financial collapse. Non-performing loans had reached alarming proportions. Liquidity problems surfaced as dis-intermediation spread and banking losses accumulated. Majority of loan defaults remained caught in an ineffective court system. These were caused by deep-rooted problems, embedded in the failure of governance and lack of financial discipline.

To revamp the country's banking sector, the authorities, particularly the State Bank of Pakistan and the Ministry of Finance in early 1997 embarked upon a "home-grown" banking reform program. To implement this reform program and to take other steps needed to revive and upsurge the banking sector in Pakistan, a lot of foreign investment was required. Foreign Direct Investment (FDI) has a direct effect of benefiting the banking sector. All the foreign investment coming in the country needs a banking channel. Apart from that, all the cross border transactions between the local and a foreign company, between the subsidiaries of a foreign company or between two different foreign companies require a banking channel. At the time of banking crisis, the bulk of foreign investment came from United States. Foreign direct investment peaked in 1995/96 at $1.1 billion with the bulk of investment coming from Unites States through different projects. The United States has been the largest source of FDI in Pakistan, with total investment of $1.2 billion as of mid-2002. Over the three years 1998/99 to 2000/01, the US-based investment totaled $250 million. The United Kingdom was the second-largest source, with $241 million.

The total FDI for 1998/99 was $327 million, including $135 million from US sources, $77 million from the United Kingdom, and $51 million from Japan. The real acceleration in foreign investment came after September 2001. After the 9/11 terrorist attacks on the United States, Pakistan received a windfall in foreign assistance, raising foreign reserves from $908 million in 1999/00 to $4.3 billion in 2001-02. In March 2003, on the eve of the US-led invasion of Iraq, foreign reserves stood at more than $10 billion and now because of the foreign investment, reserves have increased to $ 12 billion. Another development in this regard has been the mergers of the banks in Pakistan. While large banks are improving their performance and converging in bottom-line performance indicators under increased competition, small banks are gradually losing ground because of the lack of scale and operational efficiency. Enhanced competition and the need to substantially grow the lending portfolio to remain commercially viable would eventually pose problems of existence for small banks.

Recognizing the system risk, State Bank of Pakistan (SBP) has stiffened its licensing policy and regulatory capital requirements and has increased the paid up capital requirements for banks to $100 million. Positioning themselves accordingly, a few banks have injected fresh capital or amalgamated with other financial institutions to meet these requirements. A wave of mergers and amalgamation has become a business reality in Pakistan and over the last five years, 21 financial institutions have been merged or acquired. This has involved a buy-in of foreign banks by the local banks, merger of smaller banks and DFls, merger of investment banks with commercial banks and so on and so forth.

In order to eventually have a stronger banking system, Pakistan is striving to further consolidate the banking sector and in this regard the SBP has approved in principle some additional mergers.

Standard Chartered Bank (SCB) has acquired Union Bank, which had sometime back acquired Bank of America and Emirates International Bank; merger of Rupali Bank Pakistan operations with and into Arif Habib Bank; merger of Atlas Investment Bank with and into Atlas Bank Limited after its acquisition of Dawood Bank Ltd; merger of Habib Bank AG Zurich Pakistan operations with and into Metropolitan Bank; and merger of PICIC and PICIC Commercial Bank.

Going forward, SBP's strategy is to allow new entrants by way of strategic partnership with licensed banks and to encourage additional mergers and acquisitions. A new concept that has recently emerged in the banking world is Basel Agreements (I and II) whereby benchmarks are being laid for banks internationally to meet certain capital, operational and market standards. The Basel II Protocol may also force marginal banks with weak capital structures to seek mergers with stronger banks for substantiality. All these developments have had a very positive impact on the banking sector of Pakistan.

With such a huge increase in the deposit level through foreign exchange, the financial strength of the banks has increased by leaps and bounds. Banks today feel much more secure against any financial crisis or adversity as their liquidity position has improved. This has helped in further increasing the confidence of investors in the banking sector resulting in a further increase in deposit level. The mergers have the benefit that they bring foreign exchange as one bank buys the share of the other. The mergers also bring new technology, new management skills and new reforms etc.

Another positive impact of the mergers is that the small banks, which were not financially strong and not able to gain the trust of the people, can now merge with the stronger banks to enhance their credibility and performance. Mergers help evolve a stronger and robust banking system to meet the challenges of the increasingly complicated financial environment. This competitive environment might also force financial institutions to specialize in offering certain types of services based on their respective expertise and market niches. However, one negative impact of the mergers is that the dominating organization in the merger might change the existing employment pattern. It might want to replace some of the existing staff with some of its own. Another drawback is that the accumulated losses can become very large when the two banks merge.

Highly placed banking sources told PAGE that along with other banks, there was also an upsurge in the financial strength of The Bank of Punjab in FY 2005 as compared to FY 2004 as a result of these developments. The bank under the dynamic leadership of youthful President Hamesh Khan has been transformed and earned a pre-tax profit of Rs 3,164.957 million during FY 2005 as compared to Rs 1,735.943 million for the FY 2004.

Profit after tax of Rs 2,353.242 million in FY 2005 was much higher than the FY 2004's after tax profit of 1,368.174 million. Basic earning per share for FY 2005 was Rs 10.04 as compared to Rs 5.83 for the FY 2004. Advances portfolio of the bank in FY 2005 was 63,623.705 million as compared to 39,483.923 for the FY 2004. The reserves of The Bank of Punjab in FY 2005 were 4,257.337 million as compared to 2,770.645 million in FY 2004.


MasterCard cardholders have the chance to win prizes worth 4,5 million Rupees when using their MasterCard debit or credit card

MasterCard Worldwide, a leader in advancing global commerce, today launched the MasterCard Holiday Season Campaign in Pakistan. Between October 15th and December 31st 2006, MasterCard, together with participating customer banks, are offering MasterCard cardholders, the chance to win one of 45 prizes worth Rs100,000 each when using their MasterCard debit and credit card.

During the Holiday Season Campaign, MasterCard, in association with participating customer banks, are offering MasterCard cardholders the chance to win 45 prizes each worth Rs100,000.

MasterCard cardholders who bank with any of the participating banks and spend Rs1000 in transactions during the entire campaign period, will automatically be entered into a prize draw. Each bank will pick their lucky winners at the end of the Campaign, and 45 MasterCard cardholders picked will receive Rs100,000 each which will be credited to their MasterCard card.

The MasterCard Holiday Season Campaign rewards cardholders when they use their MasterCard card, and enables the winning MasterCard cardholders to use their prize money to enjoy unique experiences of their choosing, such as visiting their family and friends.

Shaun Rashid, Vice President, GCC & Pakistan, MasterCard Worldwide said: "MasterCard is delighted to introduce the MasterCard Holiday Season Campaign in Pakistan, cooperating closely with the participating customer banks and offering MasterCard credit and debit cardholders chances to win amazing prizes. MasterCard is a leader in advancing global commerce and all MasterCard cards carry the assurance of being accepted at more than 24 million acceptance locations around the world, which include more than 1 million ATM locations worldwide. MasterCard is the best way to pay for everything that matters at home and abroad. Using MasterCard cards in Pakistan gives credit and debit cardholders the chance to win credit during the Holiday Season Campaign."

Note to Editor: The participating bank's terms and conditions apply to the promotions.


MasterCard Worldwide advances global commerce by providing a critical economic link between financial institutions, businesses, cardholders and merchants worldwide. As a franchiser, processor and advisor, MasterCard develops and markets payment solutions, processes close to 14 billion payments each year, and provides industry-leading analysis and consulting services to financial institution customers and merchants. Through its family of brands, including MasterCard(r), Maestro(r) and Cirrus(r), MasterCard Worldwide serves consumers and businesses in more than 210 countries and territories.