July 20 - 26, 2009

While rising non-performing loans has affected many banks in Pakistan, few banks are still neglecting the impact of NPLs on their financial results due to their low-key portfolios in consumer, SMEs, and commercial lending-three that have mainly caused bad debts outturn since the economic depression started. "JS Bank has lowest advance to deposit ratio," says Basir Shamsie, Senior Executive Vice President JS Bank, adding we are getting round the high rise in NPLs. Infection of assets in corporate sector, that he says, is the last one in the list of non-performers is negligible. This is quite reflective in the fact Pacra has recently upgraded the long term and short-term entity ratings of JS Bank to 'A' and 'A1', he told PAGE in an interview. These ratings are assigned because of low credit risk.

He says, "Our main focus is on corporate lending". Slowdown in economic activities has rendered many debtors insolvent, triggering default rates during the last financial year. In first half of this calendar year, according to the State Bank, banks' investment has increased by 38 percent whilst private credit grew only by 0.1 percent in a wide contrast to 11 percent in the corresponding period last year. Risk aversion is a common drive behind investment in government securities by certain banks during the time when exposure to assets (advances) can lead to non-performing loans. Risk aversion is not the only driver, "Since locking liquidity in the government papers has good returns when discount rate is high", said Shamsie.

The discount rate that was heading upward consistently since July 2007 and aggregately inched up to 550 basis points, rallied downward April this year to 14 percent. The inflation expectation sees further cutback. By June end, inflation stood at 13.1 percent. Although the focus of JS Bank is on corporate lending, it had already adopted risk aversive measure last year by investing in long-term government securities at the prospect of sharp decline in discount rate. "In the expectation of decline in discount rate, we had started shifting investments to one year treasury bills and 10-year PIBs last year, which have possibility of high capital gains," he revealed.

To a question, he said last year inflation was at its historical peak and despite freefall of international commodities' prices inflation took delayed effects in Pakistan because of Pak rupee devaluation. "As inflation was high base rate, its nosedive was obvious. Nothing could stop it dropping down in the midst of global overheated economy."

According to him, State bank of Pakistan recognizes JS Bank for its active participation in the treasury bills auctions. The bank is one of the ten primary dealers of securities, he said. Other includes HBL, NBP, UBL, MCB, City Bank, Standard Chartered, RBS, NIB, and Pak Oman. Only these banks can participate in the auctions. State bank has set certain criteria for financial institutions to qualify as primary dealer. The applicant for the status of primary dealership must have an equity of Rs500 million. Making market liquid is another condition. Participation in the secondary market is mandatory to qualify as PD. With an active trading in both primary and secondary markets, JS Bank is considered a top-tier trader of marketable securities, he said added, "We do sale/purchase securities". In secondary market, JS Bank is in market making of securities in banking and non-banking sector. 'JS Bank has an extensive outreach in non-banking market such as insurance, brokerage, and others and is acknowledged by industrialists as leader in transacting securities in non-banking sector.' Basir Shamsie is also group head treasury, markets, FI.

Asked when discount rate is stagnant then how Karachi interbank operating rate is on downward direction, he replied market was expecting discount rate cut. There would be one to two percent cutback possible in the next monetary policy, he commented. Kibor came to 13-month low last week whilst discount rate stayed at 14 percent. Discount rate is a benchmark rate of transactions between central bank and financial institutions while from overnight to one month Kibor is a reflection of immediately available liquidity in the interbank market. Six month Kibor is a good indication of market expectation, as it is forward looking rate.

Resource mobilization modes of JS bank are similar to other commercial banks. The bank focuses on to mobilize retail deposits. Corporate banking continues to be a main function, he answered to a question. As of June 2009, the bank operates 72 branches in 29 cities across Pakistan. "By December 2009, JS bank is expected to have 119 branches." The bank started operation with four branches in December 2006 after the merger of American Express Bank's Pakistan operation and Jahangir Siddiqui Investment Bank Limited. The bank's advance portfolio was negligible at that time and we had to set off advances, Shamsie said.

Recent economic downturn punctuated the assets base of JS bank. Assets showed a considerably upward trend until December 2007, rising to Rs20.3 billion from Rs12.5 a year back. However, total assets did not maintain the striking growth as they reached to only Rs21.6 until end of 2008. It was because of cautiousness of the bank in exposure in the wake of global recession, observed Shamsie.

Talking about plan, he said the bank would continue focus on corporate banking and expansion of branch network. Making market for government long-term securities is a safe bate, as single digit inflation has left no ground for high discount rate. Despite further questions about NPL prospects and banking scenario in Pakistan, Basir Shamsie did not come up with straightforward answers. His is a second job in Jahangir Siddiqui Group. He joined the group in 1994. Since then he served on different positions. Before joining the JS Group, he worked in Upjohn Pakistan.