Aug 23 - 29, 20

Restructuring of state-run organisations has a long history in Pakistan where governments often involved private partners to accumulate funds for lose making companies and as a cost cutting measure to lighten burden on national treasuries. In Pakistan, success stories emanating from such restructuring of state-run companies are counted on fingertips, and confined to few sectors of the labour-intensive economy of Pakistan. Banking sector of Pakistan was opened to privatisation or private participation to improve capital strength of the banks.

Muslim Commercial Bank, United Bank Limited, Habib Bank Limited and Allied Bank were few of the entities run by the government and when their shares were sold out to the private sector, the outcomes were generally in accordance with the objective of improving asset-base.

In particular, MCB and UBL have seen a robust growth in their asset sizes as financial activities through banking channels are increasing in the country. Experts attribute this to rise in consumer spending. Not only in Pakistan, has consumer spending scaled throughout Asia also. According to a report by Asian Development Bank, consumer spending in Asia might reach 32 trillion US dollar by 2030 spurred by the swelling middle class.

In terms of assets, MCB and UBL are the biggest banks only after HBL in private sector and state-administered National Bank of Pakistan. Total assets of MCB stood at Rs501 billion and UBL Rs585 billion as of March 2010. HBL and NBP have topped asset base of the banking sector having beyond Rs800 billion assets by that month.


A consortium of UAE-based and UK's Bestway purchased 51 per cent shares of UBL from the government of Pakistan in 2002. The privatisation remained profitable for the government and it lifted up the profitability of the bank by over 80 per cent in the following year. The branch network of the bank has expanded to 1121 domestic and 17 overseas branches. The bank has set up representative offices in Iran, Kazakhstan, and China. The bank also has four subsidiaries including United Bank AG Zurich, Switzerland, UBL UK, UBL Fund Managers Ltd, and United Executors and Trustees Company Ltd. UBL earned Rs2.8 billion profit after taxation for the quarter ended March 31, 2010, registering 10 per cent growth over previous year.

Aside from economic aspect and monetary benefits, privatisation in the banking sector creates consumer-oriented services besides inviting foreign participants to avail liberalised policies in the financial sector of Pakistan. New banking services provide accountholders convenience in money transactions whilst some consumer banking services e.g. credit cards and auto loans remain the centre of criticism on financial jugglery.

Initially, State bank of Pakistan granted eight commercial banking licences to the private sector in 1991. The paid-up capital requirement was minimal when compared with today's benchmark. The central bank fixed it at Rs300 million and later revised it up to Rs500 million. At present, State bank has fixed the minimum paid-up capital requirement in the range of Rs5 billion and Rs23 billion to be met in phases. The aim is to ensure the solvency of banks and development financial institution. This condition also heated up the mergers and acquisitions activities in the financial sector of the country with small banks opting out amalgamation with large banks.

Liberalised policies in the financial sector and divestment of shares to private sector led financial innovations, competition, and customer-convenient services in the financial spectrum of the country.


MCB was privatised through a strategic sale. The bank claims to have four million customers and nationwide distribution network of 1100 branches and 450 auto-teller machines. MCB has the distinction of having deep branch network in rural and urban areas of Pakistan. This gives MCB a competitive advantage over local as well foreign counterparts; a fact manifested in bank's growing profitability. In half year ended June 30, 2010, MCB recorded profit before tax of Rs12.2 billion in contrast to Rs11.7 billion in the similar period last year. In six months, its deposits rose 14 per cent to Rs419 billion from Rs368 billion in December 2009.

MCB has recently launched leasing subsidiary in Azerbaijan. "It will cater to transportation, logistics, food industry and processing, trade, telecommunications, health, tourism, processing and storage of agricultural products, construction and other promising sectors of Azerbaijani economy," says a statement of the bank. "We endeavor to establish long-term relationships with our customers in Azerbaijan by offering them innovative products coupled with superior customer service and a personal approach to our clients' financial needs," said Sibt-e- Hassan Taqi CFO MCB Leasing.


Privatisation of state-operated enterprises could not escape the acidic public criticism over its transparency since in past many state-run companies were sold at throwaway price and to incompetent buyers who had no experience in managing affairs of technical undertakings. The result was closure or underperformance of the companies. Almost all sectors put before auction counter have a company or two with outputs getting further pathetic after privatisation. The social downside of privatisation is alleged cartelisation and fleecing of consumers by similar-interest groups especially when the government offloads its stakes in a company without transparent scrutiny of bidders. Financial sector of Pakistan has been hotbed of equity purchasing as foreign institutions took interests in global depository receipts of banks as well as initial public offerings met the good responses in local stock exchanges. Attractive valuations of shares also goad investments.

Most importantly, spread, which is highest in the region and does not respect the depositors makes banking sector attractive for foreign and local investors. Bank justifies the low cost deposit strategy to avert downbeat economic progress. On the other hand, risk aversion and profitable government securities in view of high interest rate put an acceleration to flow of liquidity from the private sector, which is detrimental to industrial growth.

Private stakeholders of UBL and MCB came hard on non-performers of loans and succeeded in improving recovery side, however layoffs triggered a debate on the social implications of privatisation of banks.