Dubai: From a medium-term perspective, gradual privatisation of Pakistan’s banking sector will be crucial to increase overall efficiency, said BMI Research, a Fitch Group company, in a recent report.
The government recently raised $1.02 billion (Dh3.7 billion) by selling 609 million of its remaining government shares in Habib Bank, the country’s largest bank.
The sale is part of Pakistan’s wider plans to privatise 68 public companies, including 10 banks. While most of the companies are making losses, Habib Bank is profitable and growing. In March, the bank announced that it had signed an agreement with Barclays Bank for the acquisition of the its banking business in Pakistan.
Analysts say China’s recent announcement big investments in Pakistan will be a big boost to the economy and the banking sector. China pledged $45 billion for roads, ports and power plants when President Xi Jinping visited Pakistan last month. The planned investment, 28 times more than the foreign direct investment Pakistan received in the year ended June, will spur investment activity and help ease the country’s growing energy shortage, Moody’s said in a recent report.
As per the agreement, both Pakistan and China will allow banks to open branches in each other’s country. Initially, National Bank of Pakistan (NBP) and Habib Bank are expected to open branches in China, with significant opportunities likely to be available in the remittance business.
Pakistan took a $6.6 billion loan from the International Monetary Fund in 2013 to avert a balance-of-payments crisis and has cleared six programme reviews. Oil prices have fallen 38 per cent over the past year, lowering Pakistan’s import bill, easing price pressures and giving the central bank room to cut interest rates.
To further improve market discipline and enhance assessment of the financial sector, State Bank of Pakistan (SBP) has evaluated and identified the ‘encouraged’ set of financial services institutes (FSIs). As of end-December 2014, asset quality has slightly improved, with a decline in non-performing loan (NPL) ratio to 12.3 per cent and net NPLs to net loans ratio falling to 2.7 per cent.
The risk to banking system seems to be negligible, as they encompass only 1.39 per cent of banking system assets. The number of Capital Adequacy Ratio (CAR) non-compliant banks has fallen from three to two due to capital injections. The combined CAR shortfall for two non-compliant private banks has decreased by Rs3.3 billion (Dh118 million) over the quarter to Rs7.96 billion (less than 0.03 per cent of gross domestic product) as of end December 2014.
