Chinese banking giant eyes
Pakistan By Syed Fazl-e-Haider
QUETTA, Pakistan - The Industrial and
Commercial Bank of China (ICBC), the world's
second-largest bank, is looking to start
operations in Pakistan.
It is exploring
the possibility of establishing its presence in
Pakistan to provide financial support to Chinese
companies investing in the South Asian country and
other development partners engaged in
infrastructure development and financial
business.
The
National Bank of Pakistan (NBP) and the ICBC have
agreed to cooperate in the banking and financial
sectors in both countries. A declaration calling
for exploring the possibilities for mutual
cooperation between the two entities was signed
last Friday by the chairman of the ICBC board,
Jiang Jianqing, who led a seven-member ICBC
delegation.
The ICBC intends to explore
the possibility of establishing its branches and
acquiring Pakistani banks to provide financial
services.
According to Jiang, Pakistan's
sustained economic growth of 7% has prompted the
ICBC to establish an economic link by opening
branches in the country. He said that if Pakistan
maintains its economic growth momentum, it will
become an economic powerhouse in the region,
attracting substantial foreign investment. He said
he appreciated the reforms introduced by the
Pakistani government and held separate meetings
with the presidents of NBP and Habib Bank Ltd
(HBL) and discussed ways to expand cooperation.
The financial sector has significantly
contributed to the overall growth of the Pakistani
economy and led to the country's improved
international credit rating. The recent successful
launching of Pakistan's sovereign bond is seen as
a manifestation of investors' confidence in
Pakistan's policies. NBP, HBL, Muslim Commercial
Bank and Allied Bank of Pakistan have shown high
growth in recent years. It is expected that
consumer lending will continue to gather momentum
as more banks focus their energies on gaining a
share of the market, which is largely
unpenetrated.
With 311.8 billion yuan
(US$41 billion) in assets, the ICBC is the
second-largest bank in the world and growing at
30% per annum. It specializes in infrastructure
finance, corporate banking, personal banking, cash
management, asset management, Internet banking and
international banking. It is also a leader in
financial services and product innovation based on
advanced information technology, corporate
governance and risk management.
It has a
large network of 18,000 branches in China and
around the world. It is a leading financial player
in China with a large customer base and
multi-dimensional business structure. In October
2005, the ICBC was officially transformed from a
state-owned commercial bank into a shareholding
company and renamed as the Industrial and
Commercial Bank of China Ltd. The new entity has a
registered capital of 248 billion yuan and 248
billion shares.
Pakistan and China already
enjoy strong economic and trade relations under
their free-trade agreement. Pakistan, under an
institutionalized arrangement of the
Pakistan-China Joint Economic Forum, is in the
process of identifying infrastructure projects,
including the development of hydropower and large
dams. Similarly, Pakistan has established a joint
investment company with China Development Bank to
support Chinese firms that are establishing joint
ventures with Pakistani companies and the large
number of infrastructure projects in the country.
The ICBC can explore the possibility of
investing in the Pakistan-China Special Economic
Zone, where most Chinese companies would set up
their businesses for contract manufacturing to
market their products in West Asia. The ICBC's
operations in Pakistan will act as a bridge
between the two countries as the two countries
strive to benefit from the expertise of Chinese
and Pakistani banks.
Pakistan is tipped by
foreign investment bankers as a potential hotbed
of equity issuance activity because of its high
economic growth and the government's aggressive
privatization policy. The $129 billion Pakistan
economy is expected to expand 8% annually over the
next five years. Foreign portfolio investment in
the local bourses has also shown an upward trend,
signifying an increasing foreign interest in the
country's capital markets. Foreign portfolio
investment, as represented by the Special
Convertible Rupee Account, showed a net inflow of
$104 million in January alone; an inflow of $23
million was recorded on just one day - January 31.
Interest exhibited by foreign companies in buying
stakes in Pakistani companies has also been well
received by the market through the country's
privatization program.
China's banking
sector is moving toward diversification. The
sector has introduced various service delivery
models, and a range of product and service
offerings are available for retail and corporate
customers. For the past five years, economic
growth in Asian markets has been driven by strong
consumer demographics, political and market
reforms and economies of scale in production. The
Asian markets are likely to provide the greatest
opportunities for global financial-services
companies looking for future growth. This trend is
likely to continue in the Chinese market after the
opening of its banking sector in accordance with
World Trade Organization requirements. It presents
both domestic and financial institutions with
challenges and opportunities.
As in other
Asian markets, financial globalization in Pakistan
has led to increased liquidity and lowered the
cost of capital, thus leading to better allocation
of financial resources and more productive
investments. It has also spurred competition and
led to a new age of financial-sector development
by improving screening of credit risks, monitoring
of borrower activities, diversification of
financial portfolios and substantially increasing
the outreach to customers. Foreign financial
institutions have also brought about improvements
in the system by bringing in highly diversified
financial tools and best practices from more
developed economies. Pakistan's banking-sector
boom has attracted considerable interest at
foreign banks.
The share of foreign banks
has reached 11.4% of total banking-sector assets
in Pakistan. Foreign banks' share in profitability
is about 11% of total banking-sector profits.
According to Jeroen Drost, chief executive officer
of ABN Amro Asia, Pakistan is a key growth market
for his firm.
Pakistan has assured that it
will provide all possible support and facilities
to Chinese banks in the country. Prime Minister
Shaukat Aziz on Friday told the ICBC that a big
menu of financial services is available in
Pakistan.
He said the government believes
in providing a level playing field for all
entrants to the market to promote healthy
competition and provide consumers with the best
and most affordable services.
Pakistan's
financial sector is attracting heavy foreign
investment and is among the top three sectors with
respect to foreign inflows. They are:
telecommunications, $1.2 billion; financial
business, $572.8 million; and oil and gas
exploration, $352.7 million during July-February
in fiscal year 2007. The government intends to
play the role of regulator and facilitator in the
financial sector, sustaining the momentum of
reforms so far achieved through the maintenance of
a growth-enabling environment.
The
existing foreign banks have by and large enhanced
their presence and stake along with new foreign
banks that have entered the Pakistani market for
the first time. For example, Standard Chartered
Bank has acquired Union Bank, ABN Amro has
acquired Prime Bank, and Temasek of Singapore has
established NIB Bank. ABN Amro's acquisition of
Prime Bank made it the second-largest foreign bank
in Pakistan.
There are other transactions
in the pipeline and they reflect the robustness
and profitability of Pakistan's banking sector.
The government is planning to sell its 45% stake,
worth up to $300 million, in United Bank Ltd (UBL)
through a global share sale, and it has invited
six investment banks to pitch for the deal.
Citigroup, Credit Suisse, Deutsche Bank, Goldman
Sachs, JPMorgan and Merrill Lynch are all bidding
for the $200 million to $300 million global
depository receipt sale. The deal is expected to
be completed by the end of this month.
Foreign banks are rapidly expanding their
networks in Pakistan by opening new branches and
acquiring small and medium-sized banks, especially
ones that are financially weak.
Syed
Fazl-e-Haider, sfazlehaider05@yahoo.com,
is a Quetta-based development analyst. He is
the author of six books, including The
Economic Development of Balochistan, published
in May 2004.
(Copyright 2007 Asia
Times Online Ltd. All rights reserved. Please
contact us about sales, syndication and republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
