March 10, 2002	Sunday	Zilhaj 25, 1422

KARACHI, March 9: It is time to say goodbye to the World War Two banking, says Finance Minister Shaukat Aziz.

Speaking at the 51st annual general meeting of the Institute of Bankers recently, he said, “we need to constantly upgrade our skills as the world is becoming more and more competitive, cycle time(s) are reducing, new player, products and practices are constantly resulting in raising of the bar, creating challenges and opportunities.

And the major banks, particularly, the nationalized commercial banks (NCBs) are now trying to update their business practices, and are broadening their business horizon to respond to the challenges of modern universal banking.

In the given current falling interest rate environment, 2002 will be a difficult year for the banks. NCBs like National Bank of Pakistan are diversifying their sources of earnings, so that to quote the NBP president Ali Reza “we are not vulnerable. The target is a true universal banking.”

A big chunk of American banks’ business comes from selling things rather than taking the balance-sheet risk. These days the commission of one sort or another account for 40 per cent of revenues, double the figures of 20 years ago. Nearly, half of these fees are unaffected by the health of the economy and continue to roll, if the economy slows.

To face global competition, large banks with diverse business activity are needed. In the US, now there are only 3,000 banks compared to 18,000 some years ago.

The NBP vision is to create markets for its products and not to wait to respond to market needs. The bank has already taken a lead in creating products. Its two subsidiaries are working as a catalyst for developing secondary market for TFCs. TFCs are illiquid and they have to be made liquid. The approval of the Karachi Stock Exchange has been received and the modalities for operation are being finalized to initiate actual trading for TFCs for the benefit of small investors.

That the NBP’s share with face value of Rs.10 are being quoted at Rs.21 would inspire some confidence in the investors wanting to buy and sell TFCs through its subsidiary.

On bank TFC holdings, the NBP president says nowhere in the world do banks hold on to the corporate bonds. The corporate bonds are initially purchased from the balance-sheet but are off-laid.

NCBs like National Bank of Pakistan are working towards the increase of their non-interest revenue from trade finance, fee incomes, retail products, fee-generating products, auto leasing, credit cards, sophisticated services for acquisition and mergers, etc.

“We have an ambitious project to do retail banking,” says NBP president and adds “we are creating a retail bank within the NBP.”

Retail banking means big interest margin. US interest rate is two per cent but credit card rate is 20 per cent. For banks to go into retail business is very important for two reasons; fee incomes increase and interest rates escalates as banks put their assets into retail business.

Now, banks lend at 9,10,11 per cent but in retail banking, they can lend at 19,18,17 per cent, says the NBP chief.

Talking about his strategy and long-term business plan at his office he told Dawn “we have identified the products that we want to launch, choosing the right I.T. platform for launching these products. This is a major investment, we do not want to rush into it, to make sure that we have the right conflagration internally, before we go for the launch. We have done all internal due diligence, we have done a survey, we have all the market data. We know that where, in retail business, the banks have succeeded or failed.”

Stating that Pakistan does not have the kind of depth that India has, about an estimated 300 million people who can be targeted for retail banking, Ali Reza reckons that in Pakistan, the figure could be in the region of 3-5 million. He is not discouraged by the size of the market and says: “My vision is to create markets for products. We can’t be responding to the market needs.”

On the investment banking side, the NBP is now working as the lead manager for a major pipeline project for floating of TFCs. An investment banking group has been set up.

With huge portfolio in equity investments, the bank has emerged as a major player in equity market. It’s agricultural credit portfolio has gone up by 30 per cent.

Among the NCBs, it has taken a lead in corporate banking and with the deep market penetration, it is aiming to become a top class corporate bank. It is also entrusted with treasury services. With a wide range of services and products, Ali Reza says that “we want to be a truly universal bank.”

The provisional results, that are still under review and audit that has yet to be completed, indicate 2001 will be a good year. Ali Reza expects that profitability may double for 2002 but says while developing diversification of earnings, he wants to increase the bank’s interest incomes as well.

No business plan can work, unless you have quality people and quality training. The bank is making substantial investment in upgrading training and skills across the board, for the maximum number of people, that meets the needs of current modern financial banking and customer service.