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Banks enjoy unprecedented expansion over past two years

Article - January 12, 2016

Pakistan’s economy is fuelling growth across sectors, with its financial sector providing numerous opportunities for global investors

Pakistan’s revival in fortunes since the election of Prime Minister Nawaz Sharif has seen the country’s economy enjoy surging growth since 2013, with a multitude of opportunities for foreign investors now emerging.

Few sectors better highlight this than the country’s financial industries, which have enjoyed unprecedented expansion during the past two years. Profits are up and demand for services is growing, with the country’s population increasingly looking for banking services where previously they had not.

Recent figures clearly indicate the potential of the Pakistani banking sector, with companies such as Habib Bank Limited (HBL) recording six-monthly profits of PKR 16.9 billion ($162 million) in the first half of 2015, up nearly 25% on the same period last year. Elsewhere United Bank Limited (UBL) has enjoyed consistent growth and Mr. Wajahat Husain, the firm’s President and CEO, says his company’s success reflects that of the sector – and the country – as a whole.

“UBL is the second largest private sector bank in Pakistan, and if you were to follow its progress, it would tell you the story of how the banking sector has performed, in spite of the economic challenges,” he says.

Overcoming those challenges have helped to turn around Pakistan’s fortunes and delivered confidence to the market. Importantly, it is not just domestic optimism either – international investors are increasingly bullish about the potential for Pakistan’s banking sector and of the 21 locally incorporated private banks, foreign investors are the majority shareholders in more than 15. It’s a similar environment with the 10 microfinance banks, with 5 entities owned by
foreign shareholdings.

Part of the reason for this has been because of the capital requirements introduced by Pakistan’s government, designed to ensure a stable and well regulated banking sector. The result has been that no sector, other than oil and gas exploration, has attracted as much foreign direct investment as the financial sector over recent years and deals such as the sale of the government’s HBL stake in April 2015 marked Pakistan’s largest ever capital market transaction. With $1.02bn raised, and $764m from foreign investment, both local and international investors have shown confidence in HBL’s future.

Similar arrangements have seen the Pakistani government sell its stake in UBL, something Mr. Zameer Choudrey, UBL director, described as a “resounding vote of confidence” in the company. Other firms, such as National Bank of Pakistan (NBP) have also enjoyed growth and its president, Mr. Syed Ahmed Iqbal Ashraf, says its success has come off the back of focused efforts on improving banking possibilities on a domestic and international stage.

“National Bank has always been a flag bearer for Pakistan at national as well as international forums,” he says. “We act as the commercial arm of the State Bank of Pakistan, so all the revenues that the government collects are collected by the NBP and given to State Bank or the Ministry of Finance.  Then whenever our country needs financial expertise, we are always there. We work for the sake of business and national interest.”


“If you take a look at UBL’s DNA, you’ll notice we are the most successful bank in terms of having a diversified strategy geographically. Over 25% of our assets are overseas, and over nearly half a decade we have managed to create the UBL brand in our niche targeted market in the Middle East”

Wajahat Husain, President and CEO, United Bank Limited

One aspect powering the Pakistani financial sector revival has been the quality of assets that its banks now hold, with credit risks lower than regional peers: HBL, for example, has slashed its non performing loans by more than 50% to PKR 2.2bn.

There is also a more global outlook from Pakistan’s financial firms, and the potential to entice new customers is huge.

“I hope that other Pakistani banks will look outward and tap the Pakistani diaspora present across the globe,” says Ishaq Dar, Pakistan’s Finance Minister, who has urged other financial institutions to look abroad for growth. “Our banks have the expertise to provide the best service in their domain and the banking industry has done very well even during the last financial crisis.”

Indeed Pakistan’s financial institutions have developed numerous innovative schemes, often through joint ventures with telecommunications firms, to enable remote banking services. UBL has become a key player in the remittance market, processing a quarter of all payments that come into the country. HBL is also a key player in the market with a 55% share in inward foreign remittances while NBP has partnered with MoneyGram to meet its clients’ needs, particularly those living in the Gulf region.


“Since the mid-fifties, the US has been consistently involved in investment within Pakistan and understands Pakistan’s terrain, people, logic and even the political system better than any other trade or business partner”

Sirajuddin Aziz, President, Habib Metropolitan BankBank

“Innovation is HBL’s hallmark and we have always delivered financial products which aim to provide ease and convenience to improve our customers’ financial well being”

Nauman K. Dar,President and CEO, Habib Bank Ltd

Despite such recent developments, many of the country’s financial institutions are already well-versed in operating abroad, with firms such as UBL having numerous offices across the globe.

“If you take a look at UBL’s DNA, you’ll notice we are the most successful bank in terms of having a diversified strategy geographically,” says Mr. Husain. “Over 25% of our assets are overseas, and over nearly half a decade we have managed to create the UBL brand in our niche targeted market in the Middle East.

“We are present in four continents. We are in the Middle East, the U.S., in Europe (the U.K. and Switzerland), and we made our debut in Africa via Tanzania.”

With a presence in 29 countries¸ HBL claims to be Pakistan’s largest domestic multinational. Habib Metropolitan Bank (HMB) also enjoys a global presence through Habib Bank AG Zurich, its parent organization. It has financial institutions located in 10 countries across four continents and Sirajuddin Aziz, President of HMB, says the network is “another attractive factor for clients as we can offer them the cost efficiencies provided by our internal trade linkages.”

Such international expansion is also helping domestic coffers and Pakistan has enjoyed a remarkable transformation over the past two years as increased political stability has powered progress that has been helped by the falling oil price, something Mr. Aziz says has been a boon for the country.

“Pakistan is favored by a changing global market place with the oil prices dropping, the commodity prices generally being low and Pakistan importing heavily in terms of energy, which has added more stability and balance.

“If you look at the inflation rate in the economy, it stands at the lowest that it has been in 42 years, which is a testimony to the Government having successfully managed the macro factors of the economy; other proof of this is the contained fiscal budget deficit, which has been brought down from a high of 8.5% to below 5% – so things seem to be improving in tandem. The impact of it to the man on the street is not so visible yet and a better economic understanding is needed for the people to appreciate these improvements.”



This is set to change however and the effect of both the oil price fall and the burgeoning financial sector is set to be felt across huge swathes of the Pakistani economy. “UBL has been proactive and we have made the best of all viable opportunities to provide stable progression, which is necessary from a systemic bank,” says Mr. Husain.

“With the interest rate scenario coming down, potentially, all the banks are highly liquid and will be focusing on every and any opportunity in the private sector, be it corporate, commercial, agriculture, real estate... the complete gamut of opportunities for financing the private sector.”

HMB is also looking to expand its services and Mr. Aziz says the firm wants to improve financial access for the country’s agrarian sector, adding that the company is already providing resources to some of the industry’s corporate clients.
The domestic front also provides a huge range of opportunities for Pakistan’s banks. Only 12% of the country’s population of 180 million has access to financial services and while profits have more recently come from investments in bonds, the private sector is now widely seen as a massively untapped source of potential revenues.

“We had investment in government securities, because we had an opportunity in the long term, but now there is going to be a clear focus onto the private sector off take,” says UBL’s president Mr. Husain. It’s a similar story from Mr. Aziz at HMB, who says the potential to expand its customer base across the country, potentially using the aforementioned remote services, is huge. The company has already been working on organic growth by enhancing its branch outreach across Pakistan and Mr. Aziz says he is now paying “particular focus” on reaching out to the customer base in Northern Pakistan.


“National Bank has always been a flag bearer for Pakistan at national as well as international forums. We act as the commercial arm of the State Bank of Pakistan, so all the revenues that the government collects are collected by the NBP and given to State Bank or the Ministry of Finance.  Then whenever our country needs financial expertise, we are always there”

Syed Ahmed Iqbal Ashraf, President, National Bank of Pakistan

Indeed both on the international and domestic fronts, opportunities are emerging for Pakistan’s financial sector. Foreign direct investment has also been ratcheted up to record levels but with the possibilities for extensive growth across growing sectors of the economy, further inflows – especially from the US – are likely.

“Since the mid-fifties, the US has been consistently involved in investment within Pakistan and understands Pakistan’s terrain, people, logic and even the political system better than any other trade or business partner,” says HMB president Mr. Aziz.

“I would say it is much easier for US investors to come in and invest money here. Infrastructure development offers many attractive opportunities; there are many listed companies looking to be linked up to a major American firm. The energy sector, especially oil and gas exploration, also has great business potential here. Pakistan has been blessed with natural resources and American expertise regarding the related industries would be very welcomed.”

UBL is also eyeing up opportunities as the amount of investment coming into the country for sectors such as oil, gas, and infrastructure, increase. Mr. Husain says the ability of UBL “to contribute in terms of investments coming into Pakistan is of the top drawer and we are the best equipped to support any such initiative.”

HMB is also preparing for further growth and Mr. Aziz says his company has been forging relationships with global operators to provide a more international service. “Looking at the trade flows and trade patterns of Pakistan we have been able to create strategic and strong relationships with other financial institutions intermediating international trade, to help our clients do business worldwide.”

Certainly Pakistan’s outlook has undergone a remarkable transformation over the past 24 months and its changing economic fortunes are now being reflected by ratings agencies and investor sentiment. The IMF program is widely seen to be on track and Moody’s has upgraded the country’s credit rating by a notch and assigned a stable outlook.  

“Fortunately, these positive developments and improving business sentiments have created much needed room for the policy makers to focus on a comprehensive reform and growth strategy,” adds Mr. Ashraf Mahmood Wathra, governor of State Bank of Pakistan.

He is now focused on maintaining stability and “unleashing the growth potential” by dealing with structural rigidities, including the privatization of loss making PSEs, increasing tax revenues and attracting further investment.

This is being aided by an improved security situation and the creation of the China-Pakistan Economic Corridor, while historically low interest rates are also encouraging FDI inflows. Japanese investors are moving into automobiles and coal-based energy projects while Russian and Korean firms are exploring infrastructure and energy sectors. And Mr. Wathra is clear that investors are only just scratching the surface of Pakistan’s potential.

“This country offers immense potential due to a large domestic market, as well as its geographical location that provides a gateway to central Asian countries,” he adds. “With an improved security situation and a more comfortable external account, foreign investors are now tracking Pakistan. And why not?”

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