BARCLAYS SET TO START BANKING OPERATIONS IN PAKISTAN

SYED FAZL-E-HAIDER
Quetta, Pakistan
Jan 28 - Feb 03, 2008

Barclays Bank of United Kingdom, the world's second largest bank, is set to start banking operations in Pakistan's financial market after the State Bank of Pakistan (SBP) granted it the license last month. Under the deal, the Barclays will be established in Pakistan as a foreign banking company and operate in branch mode with a capital of US$100 million. It will initially establish 10 branches in the main cities of the south Asian country. Pakistan expects that entry of Barclays would strengthen the country's banking system, bring a significant amount of foreign direct investment and technology to launch innovative financial products.

Listed on London, New York and Tokyo stock exchanges, Barclays Bank Plc is a subsidiary company of Barclays Plc. With a regulatory capital of US$68.138 billion, it is a major global financial service provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services. With a customer base of over 27 million, Barclays Bank and its companies operate 3,913 branches in over 50 countries. It has established a track record of successful and sustainable banking operations across the world.

Barclays will be the seventh foreign bank operating in Pakistan in branch mode. Foreign banks have substantially increased their share in the country's banking system in the last five years. The estimated share of foreign banks in the banking industry has reached 13 per cent. In terms of assets, foreign investors possess about 42 per cent banking assets of Pakistan. The country's banking assets during the five-year period have grown from Rs2,223 billion to Rs4,884 billion; advances from Rs1,062 billion to Rs2,603 billion; and deposits from Rs1,678 billion to Rs3,691 billion.

The existing foreign banks have by and large enhanced their presence and stake in Pakistan along with new foreign banks that have entered the domestic market for the first time. For example, Standard Chartered Bank has acquired Union Bank, ABN-Amro has acquired Prime Bank, and Tamasek of Singapore has established NIB Bank. There are other transactions, which are in the pipeline and reflect the robustness and profitability of banking sector in Pakistan. Now the Barclays Bank has got the license to do business in Pakistan. With its extensive network and experience, Barclays is expected to enhance competition and efficiency in the country's banking system. During the past five years, Pakistan financial sector's deposits have grown by 70 per cent and they had reached Rs5.10 trillion ($85 billion) by the end of year 2005. The overall size of banking sector reached to Rs4.3 trillion by the end of year 2006, which further increased to Rs5 trillion by first half of year 2007. As per latest SBP report, the financial sector showed great performance in last two years and its overall size reached Rs6.9 trillion.

ABN AMRO was the first foreign bank to be granted a license by the government of Pakistan. With total assets of over Rs 66.5 billion, equity of Rs 4.5 billion, and deposits of almost Rs 52 billion, it is placed and well positioned as one of the larger foreign banks in the south Asian country. Over the last five years, it has significantly enhanced its profile in Pakistan, and is comfortably ranked amongst the top three foreign banks in the domestic market. It has already completed its transaction for acquiring Pakistan's Prime Bank increasing its stake in Prime Bank to 96.17 per cent. It has been so far the third largest foreign bank operating with 12 branches in six cities of Pakistan. The acquisition of the Prime Bank has made it the second largest foreign bank in Pakistan.

The SBP latest report on booming banking period of last three years reflects that all major banks, including foreign banks, made record profits, but did not pass on the profits to their depositors. The report reveals that not a single foreign bank is paying better returns to its depositors while they are among the banks with high banking spreads. It further says that not a single foreign bank, with high banking spread is on the list of top 15 banks with high average deposit rates. Foreign banks find it easy to mobilize deposits with lowest return rate due to public trust in them. The SBP report negates the general perception that foreign banks provide better returns on deposits.

The SBP Governor claims that entry of Barclays reflects the confidence of foreign banks in Pakistanís banking system. According to the official sources, the banking system has illustrated its capability to be strong and robust system which has great prospects and potential to grow given the retail market of this country as captured by its population base and growing per capita incomes. Foreign banks are rapidly expanding their network in Pakistan by opening new branches and acquiring small and medium banks, especially those, which are financially weak and are unable to meet the SBP's requirement of enhancing the paid up capital over year.

Barclays needs more access in Pakistani market to compete with other foreign banks and that might result in more acquisition in Pakistan. It earlier had held negotiations to acquire a Pakistani bank, but the deal could not be materialized. It however, got the license to operate in the country. Presently, the wealth management is negligible in Pakistan. Barclays being one of the largest wealth managers would certainly penetrate into the market. The bank is likely to give more confident and stronger look of the banking in Pakistan It would bring a number of new products which are still to be introduced in Pakistani market. Barclay's expertise in credit card would create new niches in Pakistani market and the country is likely to get benefit in the field of wealth management and credit cards.

The financial sector has played an important role in the macro-economic growth of Pakistan. The banking sector in particular has the potential to grow further. Its vitality and expansion have been crucial for national economy. According to the latest report based on the IMF executive directors' assessment, Pakistan economy continues to perform well despite recent political developments in the transition period as well as turbulence in the international capital markets. It has observed that Pakistan's economy continued to perform strongly in 2006/07. Real GDP growth increased, the international reserve position strengthened, and debt ratios declined. The favorable economic performance and structural reforms to improve the business climate have spurred capital inflows in recent years.

After the killing of former Prime Minister Benazir Bhutto in suicide blast on December 27 in Pakistan, the economy is likely to remain in turmoil for the next two to three months. The sense of insecurity among citizens and the deepening political crisis has portrayed an undesirable image of the country, which may harm its investment portfolios. The real problem is reviving the country's image in the foreign countries after the tragic demise of a big leader.