President of the National Bank of Pakistan, the financial arm of the country, Syed Ahmed Iqbal Ashraf has more than 30 years of experience in banking and is a recognized figure for playing major roles in the privatization commission of UBL and PESCO. Under his management, the bank has surpassed all expectations and seen an outstanding 368% increase in profit in the past two years. It has also developed a handful of financial inclusion measures that – along with its 1,400 recently modernized branches – are positioning the bank as the second largest in Pakistan. Here, Mr Ashraf provides Global Vision with an insider’s view of what lies ahead for Pakistan’s economy.
How do you see the Pakistani economy performing in the upcoming years?
Pakistan’s economy will pick up during the second half of the current fiscal year due to the stable growth in large-scale manufacturing sector, the start of multibillion-rupee projects, such as the CPEC (China Pakistan Economic Corridor), and a good winter rains season that will bolster agriculture production.
Despite challenging global economic conditions, Pakistan’s overall macroeconomic outlook appears stable.
Growth is likely to come, fiscal positioning is strong, inflation is likely to stay low, and risks on the external front have been moderated to a large extent.
The LSM (large-scale manufacturing) sector grew 3.9% in the first half of the current fiscal year against 2.7% in the previous one; major contributions to LSM came from the auto, fertilizer and construction-allied industries.
The decline in oil prices allowed a 39.8% fall in the country’s import bill, helping reduce the trade deficit by 1.6% in the first half. Furthermore, the pass-through of lower prices by the government has contributed to pushing down the consumer price index inflation to a multi-decade low.
Growth is forecast at 4.5% for fiscal year 2016 and 4.8% in fiscal year 2017.
What will be the impact of Pakistan’s move from frontier market to emerging market status?
The decision to reclassify the MSCI Pakistan index from frontier market to emerging market next year may appear to be a routine reclassification of economies by MSCI, but it has the potential to dramatically change the dynamics of the Pakistan equity market.
Not only will the size of passive fund flows increase, many large emerging markets’ funds may return to Pakistan. The Pakistani equity market has grown significantly and its liquidity has greatly improved. As a result, concerns have receded about the potential for failing to meet size and liquidity criteria should there be a negative market.
Pakistan was part of the MSCI emerging markets between 1994 and 2008. However, the temporary closure of the Karachi Stock Exchange in 2008 led MSCI to remove it from the emerging markets list and classify it as a “standalone country index”. MSCI made Pakistan part of the frontier markets index in May 2009 and it has remained as such since then.
The possible reclassification is expected to attract greater foreign inflows to the Pakistan equity market, although Pakistan’s wave in the emerging markets will be small. Funds tracking emerging markets are many times higher then funds tracking the frontier markets.
What opportunities does the CPEC offer for the financial sector?
The China Pakistan Economic Corridor (CPEC) is of huge significance to both countries, not only in terms of its impact in Sino-Pakistani politics, but also through the multitude of economic benefits that it seeks to provide for both countries. The CPEC entails the construction of textile garments parks, ventures in the energy sector, development of coal mining projects, construction of dams, installation of nuclear reactors, and creating a network of roads, railway lines and oil and gas pipelines.
Earlier in the year, Pakistan signed agreements with China to secure investment for the CPEC, which would be to the tune of $46 billion. There are around 51 agreements, out of which work on eight projects is commencing and the foundation stones of five have been laid.
One of the benefits of the CPEC is a reduction in unemployment. Once the Gwadar Port is functional and once trade commences, business activities in Pakistan will get a much-needed boost.
It has also been reported that once the corridor is functional it will generate significant transit fees estimated at approximately $70 billion per year on Chinese cargo transported through CPEC on the Kashgar-Khunjerab-Gwadar route.
Therefore, investing in the CPEC would be a win-win situation for the two countries as Chinese investors will need local financing and will compensate the equity cost.
Pakistan is expected to achieve a growth rate of 6% or 9%, which is the highest in the world in the current depressed economic scenario.
How important is having increased the foreign exchange reserves of the State Bank of Pakistan?
Pakistan is doing a great job and has been successful in antiterrorism policies. The good results, the liberal investor friendly policies, and the high growth rate that is expected in the next five to seven years despite the global slowdown have helped to pass from 18,243.8 in 2010 to almost 20,294.2 this is January.
What are the key elements behind the success of the National Bank of Pakistan’s performance in the last few years?
The National Bank of Pakistan showed record growth in deposits, profits and assets for 2013 vs. 2015. As Pakistan’s largest public sector bank rated AAA by PACRA/JCR-VIS, the National Bank of Pakistan plays an important role in strengthening the nation and facilitating its customers.
Profit increased by 368%, deposits increased by 30%, assets increased by 25%, and we did a technological transformation of more than 1,400 branches. We have the fastest growing Islamic banking branches and services, we are the widest online banking network in Pakistan and the largest lender in agriculture financing. That makes us one of the largest consumer banks in Pakistan.
We have been awarded Bank of the Year 2015 by The Banker and the Best Emerging Islamic Bank award 2015 by the Pakistan Observer.
We achieved the successful implementation of corporate banking applications. The system was initially approved in 2007 at a cost of $45 million and was stalled for the last several years. We have also upgraded our IT infrastructure to improve productivity and facilitate customers with fast processing.
Our business model is now becoming more and more automated. We have started SMS alerts and e-statement services for all our customers. Automation of government pension payments and tax collection is also under implementation, and is expected to be in place by the second quarter of 2016. This year our ATM network has increased to more than 1,000 units and this will greatly facilitate all customers.
We are converting selective conventional branches into Islamic branches, so our Islamic footprint is now spread over 42 major cities across the country with a network of over 80 branches compared to the only 22 that we had in 2014. The plan is to have 150 Islamic branches by the end of 2016.
How is National Bank of Pakistan contributing to the national financial inclusion?
We are integrating people into the banking system with the launch of the national financial inclusion strategy in May 2015 in order to increase access for all Pakistanis, including those traditionally marginalized in the formal financial system.
Financial inclusion can help Pakistan’s society and economy to grow stronger and more inclusively. The economy grew 4.24% last year, the highest rate in seven years, but poverty remains high. Pakistan’s goal is to achieve financial access for at least 50% of adults, including woman, and to increase the percentage of SME loans through bank lending to 15% by 2020.
Bank account holders in Pakistan increased from 11% in 2008 to 15% now due to the financial inclusion policy. The goal is to increase account holders to 50% by 2020.
Around 85% of adults here do not have access to formal financial services. That is not to say the people in Pakistan are not using financial services more often. According to the Global Findex Database produced by the World Bank, the level of financial inclusion in Pakistan is the lowest in South Asia. Women have a much lower rate of financial inclusion in Pakistan than men, with a gap of between 5% and 11%.
How is the National Bank of Pakistan promoting the use of technology to improve customer experience?
The IT division has undertaken major projects after the induction of the new chief information officer and the chief information security officer in the past year. Among the key initiatives include the migration to a new technology platform that will offer greatly enhanced security, efficiency and usability.
How is the bank engaging with overseas Pakistanis and their remittances?
Our huge branch network is discovering each and every corner in Pakistan. The National Bank of Pakistan has a good market share in remittance business and we are among top five banks of Pakistan in terms of home remittances. We have shown tremendous growth in the whole area of remittances, and the establishment of a new remittance corridor in the US, UK and the Far East countries.
We have the most penetrating network in Europe, as well as in the rural areas of Pakistan, which is providing comprehensive domestic distribution of remittances to beneficiaries across Pakistan. A number of renowned international exchange houses and money transfer companies from across the world including the Middle East, Europe, Asia-Pacific and America have been using our services with utmost trust and satisfaction.
How should entities like the National Bank of Pakistan work to create a friendly environment to attract FDI?
Improving the competitiveness of production in Pakistan through the transfer of technology and upgrading labor skills – especially in agriculture and horticulture, mining, manufacturing, housing and engineering – is key to helping Pakistan.
We need to boost Pakistan through facilitating access to overseas marketing and distribution networks and including Pakistani producers and service providers in the international value-added chains.
FDI in Pakistan mainly comes from for all regions, including the United States with 25%; Southeast Asia, mainly Malaysia and Hong Kong, with 20%; the European Union, mostly the UK, with 12%. FDI promotion efforts will focus on these regions plus China and the Far East, where there is considerable potential.
Why should international investors choose Pakistan?
Pakistan has opportunities in every sector: agriculture, energy, mining, infrastructure and construction, retail, financial services and even pharmaceuticals and telecoms.
We have more than 1.7 million hectares available for corporate farming. Our current demand and supply has a gap of 8,000MW and demand is increasing 8% every year. Plus, we have vast reserves of coal yet to be explored.
With the population of the country rising at the rate of 4 million per year, there is a need of 650,000 housing units annually; however we only build 350,000 units so there is a shortfall for another 300,000.
We have a growing middle-class estimated at about 25% today and expected to be up to 50% in the following years. The growing popularity of international products is a reality and Pakistan is emerging as an expanding market for US and European retail companies.
Investors can find opportunities in each and every sector in Pakistan.