PAKISTAN'S FINANCIAL SECTOR PERFORMS WELL DESPITE GLOBAL FINANCIAL CRISIS

KANWAL SALEEM
Mar 9 - 15, 2009

Despite mounting pressure on global financial system since 2007, Pakistan's financial sector performed well during the calendar year 2008.

Most of the Pakistani banks booked profit during 2008, however, ratio of their profits declined due to downward trend in leasing business as well as loan disbursement process. Due to comparatively better facilities and exclusive services provided by our banks to the clientele of the high strata they successfully attracted huge deposits.

After privatization, the banking sector continued to experience the ups and downs and failed to achieve a sustainable growth rate due to excessive politicization in the financial sector. From 1974 to 1977 the size of the bank deposits was doubled, however this pace of growth became stagnant during 1977-80. The next five-year from 1980 to 85 showed some improvement but again banking sector suffered a slow growth rate from 1985 to 1988.

COMMERCIAL BANKS FLEECING CREDIT CARD HOLDERS

There are complaints that various commercial banks are fleecing the credit card holding customers and making windfall profits at the cost of hapless bank customers. The sales staff /employees of the banks are used to allure and hook the innocent customers cunningly by false attractive offers while concealing facts as a result of which none or short payments occur. During the world economic downturn, corporate engagement with ethics, trust and the fight against corruption is growing, analysts believe.

The issue of values and principles in restoring trust and confidence of businesses is today more important than ever, they said. There is some possibility that there is new, illegal financial activity because of the global financial crisis, but there is also the phenomenon of various kinds of corruption, such as Ponzi schemes, collapsing because of the lack of cheap, ready credit, they added.

LEASING BUSINESS FACING SLUMP

The leasing business in Pakistan is facing slump these days due to host of problems and strict regulations by the banks. However, the leasing sector has become an important sector of the country playing an important role towards capital formation and assisting the other sectors in balancing, modernising and replacement.

In Pakistan, leasing business started to develop as an organised sector in the middle of eighties as the first leasing company was established in the year 1985. Thereafter, the sector showed continued progress and development for a decade as in the first six years i.e. up to 1991, 6 leasing companies were established and from 1991 to 1997 the sector showed tremendous growth as during the period as many as 27 new leasing companies were set up.

According to the Leasing Companies (Establishment and Regulation) Rules, 1996: "Leasing Company" means a company engaged wholly in the business or which invests in such business of leasing at any one time an amount equivalent to at least 70-percent of the aggregate of its paid-up share capital and free reserves.

At present, there are 33 leasing companies listed on the Karachi Stock Exchange with a listed capital of Rs 4.66 billion. Of them, only 5 have attained a balance sheet size of over Rs 2 billion. The market capitalization has hovered around Rs 3.45 billion to Rs 3.9 billion during the month of January 2000, being around 0.8% of the total market capitalisation of the listed companies on the KSE.

As the overall economic scenario of the country is grim and depressed since the last couple of years and passing through a phase having multiple uncertainties and threats of further economic sanctions, hence, it also adversely affected the performance and growth of the leasing sector considering the fact that the growth and sustainability of leasing business is directly variable with the performance of other sectors. Presently, leasing companies are facing with issues that are not pertaining to the aspects directly governing leasing companies. The intrusion by commercial banks in the leasing sector, lack of volume, and uncollected receivables are the factors hampering the performance of leasing companies. Banks and the DFIs find leasing business very attractive and with an edge in resource potential and cost, these institutions poise a real threat to the leasing companies.

RISING CREDIT DISBURSEMENT TO THE AGRICULTURE SECTOR

According to statistics, disbursement of credit to the agriculture sector by commercial and specialized banks has increased 11.48 percent year-on-year to Rs 116.777 billion during the first seven months (July-January) of the current fiscal year (2008-09).

Agricultural credit disbursement, in absolute terms, rose by Rs 12 billion in July-January, 2009 period when compared with disbursement of Rs 104.755 billion during the same period of the last fiscal year (2007-08).

Overall credit disbursement by five major commercial banks including Allied Bank Limited, Habib Bank Limited, MCB Bank Limited, National Bank of Pakistan and United Bank Limited stood at Rs 56.862 billion during July January, 2009 period, compared with Rs 50.520 billion during the same period of the last fiscal year, depicting an increase of Rs 6.34 billion or 12.55 per cent.

Zarai Taraqiati Bank Limited, the largest specialized bank, has disbursed Rs 32.928 billion in July-January, 2009, compared with Rs 28.125 billion during the same period of the last fiscal year, while disbursement by Punjab Provincial Co-operative Bank Limited stood at Rs 3.283 billion in July-January, 2009 period, compared with Rs 3.666 billion during same period last fiscal year. Besides, 14 domestic private banks also loaned a combined Rs 23.704 billion in July-January 2009, up 5.61 percent when compared with Rs 22.444 billion disbursed in July-January 2008.

The agriculturists have described this disbursement as a good omen for the country's agriculture sector. However, they urged the government to take pragmatic steps for giving boost to the country's agriculture sector.

It may be recalled that the State Bank of Pakistan has set an indicative credit disbursement target of Rs. 250 billion for the agriculture sector for the current 2008-09 fiscal year, which is higher by Rs 50 billion or 25% than last fiscal year's target of Rs 200 billion and Rs 38 billion or 18% higher than the actual disbursement of Rs 212 billion in FY08.

PAKISTAN ATTRACTS HIGHER FOREIGN INVESTMENT

Despite worst global financial crisis, Pakistan attracted higher foreign investment during the first seven months of the current fiscal year.

According to official data, the inflows reached $2.588 billion and were slightly higher by 1.3 per cent as compared to the corresponding period of last year. However, portfolio investment remained negative and an outflow of $356 million was recorded during the seven months and it was much higher than the outflow of $0.4 million in same period last year. Details showed that foreign direct inflows came from various regions and countries. The trend of inflows did not change except that inflows from the North America witnessed a sharp fall.

Foreign investment dried up in most of the countries. Interestingly, foreign investment dried up in most of the countries as liquidity crunch in the banking industry of the developed economies left no option for flow of credit across the globe. Most of the giant industries were getting help from government's fund to continue their operation or minimise their losses.

However, in case of Pakistan foreign investment continued to land in focused areas, like telecommunications, oil and gas exploration, power sectors and financial business. The State Bank reported that foreign investment without privatisation proceeds increased by 6.1 per cent during the first seven months. Till last year, $133 million came as privatisation proceeds of the PTCL. The telecommunications sector attracted a total of $708.5 million compared to $665.8 million during the period. Oil and gas exploration sector attracted a total of $418 million, which was 14 per cent higher than the investment made during the same period of the preceding year. FDI was 112 per cent higher in power sector, as inflows reached $80 million compared to about $38 million in this period last year. The region-wise FDI shows that inflows from North America fell by 46 per cent to $524.5 million during the period from $970 million in the same period of last year. Investment from other regions, like Middle East, Europe and others, remained almost same with slight variation in the amount of investment.