Banking sector remains key in a turbulent period

Islamabad: The outlook for Pakistan's banking sector remains central to the mood among the country's equity investors, many of whom are keen to protect their assets during a potentially turbulent period.

The next few weeks in the run-up to the January elections will present equity investors with tough choices.

The elections will undoubtedly unleash new divisions in Pakistani politics, driven mainly by controversy surrounding the extent to which Musharraf could have been a more honest overseeing broker of Pakistan's politics. Instead, his actions have made him appear largely self-centred and unable to assimilate the need for ensuring more stability.

Investors in bank stocks have been left unscathed so far by the political turbulence. This is mainly because banks have undergone a significant recovery in the past few years.

Areas such as the rise in consumer loans tied to booming car sales or an upturn in demand for loans from prospective home buyers, have helped to raise economic activity that directly benefits banks.

Assurance

For the moment, the banks have little cause for anxiety. This must be reassuring to investors banks. In a country with a population of 165 million, Pakistan's banks have plenty of opportunities to grow.

To some extent, the future for banks will be driven by opportunities for financing new infrastructure projects. The fact that booming car sales have caused serious obstructions must create the need for a fast paced investment in new roads.

A growing population needs to be supported by a significant growth in the availability of energy, notably electricity and gas. All such investments will materialise once the government is able to oversee the execution of new projects, which will have to be at least partially financed through loans from banks.

New trends

To a large extent, more Pakistanis are now using banking services. Unlike the past when many people just did not appreciate the benefit of using banks, healthy trends have emerged. For instance, driven by the fear of lawlessness, a growing number of Pakistanis now rely on ATM cards or credit cards.

While equity investors who have picked stocks of banks need not be immediately anxious, banks and bankers face what is indeed a challenge. In spite of their robust growth, a large part of Pakistan's rural dwellers have still not been captured in the client base. This raises the question of a future where in spite of the upturn in recent years, Pakistanis living in remote villages still have to become linked to the country's banking revolution.

The writer is a journalist based in Pakistan.