May 11 - 17, 2009

Pakistan's banking industry has changed for both banks and consumers during a last couple of years. No yardstick can accurately measure which side is more advantageous since consumers are experiencing variety of new banking services to which they were not accustomed. On the other side, graphs of assets and profitability of banks are exhibiting signs of ratcheting up on the strong back of financial products' outreach expansion and flexibility in regulations.

"Still there are lot of things to do [in local banking system] and that was mainly what prompted me to come back to Pakistan," asserted Husain Lawai-popularly known for his being pacesetter of overseas transactions. He placed overseas transactions of more than $1.5 billion of PTCL, Rice Export Corporation, and Ibrahim Fibres in his stint as president and chief executive of Muslim Commercial Bank during 1991-1996. A veteran banker with almost four decades of exposure to local and international financial sector, Lawai made his debut in banking and finance in 1971 by having been appointed Officer Grade-I in MCB.

A doom cast a shadow over his career following his alleged involvement in transferring of $10mn to ARY Gold account on order of Asif Ali Zardari in October 1995. Saifur Rehman, the then chief of anti corruption cell, reportedly said, "Lawai acted as the conduit in an alleged deal between Zardari and a leading gold dealer of Dubai" after his (Lawai's) arrest by Interpol in Australia in 1998. Husain Lawai said he was cleared from all allegations put against him.

President Arif Habib Bank, Husain Lawai is of the view that locals should come forward to participate in developing banking system of the country. "I think I can really do something positive towards development of local banking system. After all, Pakistan is our country and we have just scratched the surface," he said in an interview with PAGE.

Reduction in minimum paid-up capital requirement (MCR) will create values for shareholders, he said with reference to SBP's regulation that revised MCR target for banks to Rs10bn from Rs23bn. He said that large capital requirements decreased shareholders' value. "For example, presently Arif Habib Bank has authorized share capital of Rs6bn and in accordance with unrevised benchmark it had to multiply four times to make it Rs23bn by 2013. That ultimately would cut down capital of shareholders. Therefore, previous MCR was overambitious," explained Lawai.

He said AHBL backtracked in the race of acquiring RBS Asian operation because of competitive high bids by MCB and HBL. Consortium buyout of high net-wroth shares leads to management conflict in future, he replied when asked if other options were trawled to keep his bank's participation intact in buyout of regional operation of foreign bank. "I do not find consortium-led investment a strategically sound decision," propounded president AHBL.

In Britain, there are more than 600 banks but they all are catering to niche market with having expertise on specialized banking service and by making tailor-made products, summarily he responded to a comment that high MCR could have restricted mushrooming banks high in numbers and low in quality of services. Regrettably, in Pakistan there is no such practice of serving targeted market and banks enter in numbers of areas to hold maximum market shares "with copycat approach". "State bank of Pakistan must ensure what bank wants to do, study its feasibility and relevance with the market before granting license. MCR benchmark is necessary however."

About difference of local and international financial sector, he said in Britain there were more than 6,000 mortgage products for example. The size of mortgage assets is more than one trillion pound. Husain Lawai holds directorship of two financial consultancies based in United Kingdom-Security Investment and Finance Ltd., UK and Rainbow Commercial Finance Ltd. providing commercial and residential mortgages advices and finances.

When asked about prospects for banking sector in 2009 with reference to consistent rise in non-performing loans, he said in Pakistan banks would reel under a pressure on margins. "Next two years will be challenging for local banking sector." He said global financial meltdown and economic downturns had affected indirectly on Pakistan's banking system. Instantly credit lines from foreign banks have become costly. Internal economic problems unravelled score of challenges for the financial sector. Cut in subsidy on energy products increased cost of doing business thereby for instance debt servicing performance by private sector became queasy.

About discount rate, he said high interest rate is commercially viable for banks in short-term. "But, in long-term it is risk-prone for profitability of banks as high cost of borrowing increases risk of growing NPLs." Husain Lawai welcomes the recent slash in discount rate by the SBP. Nevertheless, he said, this cut improved the public debt repayment ability. "Government remains prime beneficiary of reduction in discount rate as the cut loosened its debt burdens by one percent." SBP brought down discount rate to 14 percent from 15 percent in mid April. Government borrows credit on market related interest rate. One percent discount means billions of saving by the government, cued Lawai.

Highlighting the objectives of AHBL, he said the bank would focus on mainly three areas: trade finance, investment banking, and small and medium enterprises. A separate group would be looking after the affairs of each area. According to him, these are ignored sectors and have sufficient capacity. There will be approval of credit line within seven days, he said. There is a plan to expand bank's branch network to 84 units by yearend. At present, AHBL has 34 branches. New branches would be established half in rural and urban areas. He said AHBL would start Islamic banking operation by July. He was general manager in Faysal Islamic Bank Ltd. (Faysal Bank Ltd.) in late eighties. In his profile, Faysal Bank was noted the first Islamic bank in Pakistan complying with principle of Islamic Shariah.