INTERVIEW WITH SHAHID ALI, HEAD OF RESEARCH, M.M. SECURITIES (PVT.) LTD.
Jan 23 - 29, 2012
PAGE: TELL US SOMETHING ABOUT YOURSELF.
SHAHID ALI: Currently heading research department of M.M. Securities (Pvt.) Ltd, I have a team of four analysts covering different sectors of economy. I did MBA-Finance from Bahria University in 2007 after that I got associated with equity research departments of national and international brokerage houses. I have written several research reports of listed companies and sectors, which were presented in electronic and print media. My areas of analysis include banking, fertilizer, refinery, oil exploration and productions, gas distribution and oil and marketing sectors.
PAGE: YOUR VIEWS ABOUT THE GROWTH AND RESILIENCE SHOWED BY THE BANKING SECTOR IN RECENT ECONOMIC CRISIS.
SHAHID ALI: Despite the economic downturn, the banking sector, in particular the big banks, has shown impressive growth in the previous and current years. A stagflationary economic environment and a high government budget deficit ensured easy pickings for the banks. Profit for the big-5 soared 17 per cent in the last calendar year and this year profits are rising further, even the smaller banks are starting to taste profitability. Persistently high inflation coupled with low cost of deposit mobilization has made sure that spreads/NIMs remained high at seven per cent and to the banks liking. The risk averse lending policy in response to the increasing NPLs has also reduced exposure of the bank to the faltering economy while continuous government borrowing has kept demand for banking funds robust.
PAGE: THE STATE BANK OF PAKISTAN (SBP) AND PAKISTAN TELECOMMUNICATION AUTHORITY (PTA) SIGNED A MEMORANDUM OF UNDERSTANDING (MOU) TO PROMOTE MOBILE BANKING IN THE COUNTRY, AIMED AT SUPPORTING THE PROVISION OF LOW COST SERVICES. YOUR COMMENTS.
SHAHID ALI: Mobile banking is a positive initiative taken by the SBP to enhance the process of financial inclusion especially for the underprivileged strata of society as mobile phone penetration is much higher at almost 85 per cent than bank penetration at 20 per cent. Having said that, the idea of low cost services has not been materialized in Pakistan. In other developing countries, mobile banking is cheaper by 20 per cent than conventional banking. However, branchless banking is significantly expensive, so the concept of low cost services has not been materialized. The newly signed MoU might help to bring competition in branchless banking, making the services more attractive.
PAGE: TOTAL 7,416 BANK BRANCHES (78 PER CENT OF 9,541) ARE NOW OFFERING REAL TIME ONLINE BANKING. YOUR VIEWS.
SHAHID ALI: No one can deny the impact the internet has made on the banking sector. Apart from obvious benefits to the consumer, deposit mobilization of banks has increased owing to increased liquidity provided to customer by providing hassle free services to consumer to transfer money, pay bills etc thus ensuring consumers have an incentive to keep money in the bank. However, in my view the greatest benefit of the increasing internet network is on remittances mobilization. Remittances have become a key source of income for the banking sector. For every remit transaction above USD100, banks are given a free lunch by the SBP of SR25, which the banks have manipulated by imposing restrictions on upper limits. Remittances also play its part of keeping the external economy stable given Pakistan's persistent trade deficit.
PAGE: YOUR VIEWS ABOUT SURGE IN BANKS' TOTAL ASSETS BOTH IN ABSOLUTE AND GROWTH TERMS.
SHAHID ALI: The robust growth in deposits and its effective channeling into investment and advances has given way to substantial growth to the banking assets. It is usual for deposits to be the source for 70 per cent of total banking assets .The growth in broad money supply and the slowdown of the economy coupled with the shift from riskier assets ensured that banks deposits have ballooned over the last five years. Technological developments, like the wider use of ATMs and internet banking also gave way to increased deposit mobilization. The deposit mobilized finds its way into government securities and advances, termed as assets for the banks. Apart from that, sustained profits and comparatively low dividend payouts have ensured net assets particularly for the bigger banks have swelled up in recent years.
PAGE: WHILE BANKS APPRECIATE THEIR EFFORTS FOR THE GROWTH OF PROFITS, THEY ARE ACTUALLY SERVING THE INTEREST OF THE GOVERNMENT AS WELL AS THEIR OWN WHILE NEGLECTING THE MAIN PLAYER OF THE ECONOMY THE PRIVATE SECTOR. YOUR COMMENTS.
SHAHID ALI: The grievances of the private sector are justified to an extent. Unlike the developed world , where banks act as financial intermediaries between the different economic agents , in Pakistan banking sector has taken the role of financial intermediately between the individuals and the governments. However, with NPLs rising at enormous pace since 2008, banks had no option but to curtail extending advances. It was just prudent not to lend to the economy as it risked the stability of the banks. And, a collapse of the banking sector would have strong repercussions for the economy, then choking credit. Controlling inflation and providing real factor resources to the industry are the main perquisites for lending to increase and be effective.