To grow its business in Pakistan, Standard Chartered plans to focus on expanding its consumer banking line as well as its Islamic banking portfolio, according to the bank’s Pakistan head, Mohsin Nathani.
We have a fairly bullish view to Islamic banking in Pakistan, said Nathani in an interview.
Islamic banking is one of the fastest growing sectors within financial services in Pakistan, with growth rates often exceeding those of their conventional competitors by over 15%. Standard Chartered won an award in the Islamic finance sector in Pakistan, with its financing of the Karachi Electric Supply Company (KESC) declared the deal of the year in 2010.
Nathani also said that the bank plans on expanding its credit card and personal loans portfolio in addition to expanding the number of products on offer to its retail customers.
However, in contrast to Nathani’s optimism, the annual report for the global company seems to suggest a reduced appetite for taking on more risk in the consumer loans sector. “In Pakistan, our appetite for customer lending continued to be selective and impacted by margin compression,” says the company’s annual report when referring to its operations in Pakistan in 2010.
The veteran banker was less optimistic about lending to small businesses, saying that the chronic power crisis has made loans to such businesses too risky.
“We have to be realistic that banks are a commercial organisation and if we see that lending somewhere is not profitable for us, then we won’t lend there as in turn, it’s going to affect our own profitability,” said Nathani.
Nathani claimed that Pakistan is an important market for London-based parent bank. SCB’s Pakistan revenues were approximately 3.3% of the bank’s global net revenues of $8.5 billion for financial year 2010. Operating profits from Pakistan accounted for about 1.7% of the bank’s global total in 2010, compared to more than 13% for neighbouring India.
The bank has a long history in Pakistan, going back to 1863 when its predecessor institution opened its first branch in Karachi. Its Pakistani operations are incorporated as a wholly owned subsidiary that has been publicly listed on the Karachi Stock Exchange since it bought Union Bank in September 2006 for $414 million.
While headquartered in London, Standard Chartered’s business is concentrated mostly in Asia, Africa and the Middle East. The bank’s strength is its retail banking network, though it does have a substantial capital markets presence in Hong Kong.
Nathani noted that the bank had been able to weather the financial crisis fairly well. The global parent bank continued to have eight years of record profits, adding employees and expanding business right through the financial crisis – even as their rivals laid off thousands of workers and saw profits plummet.
In Pakistan, while Standard Chartered saw its profits decline during 2008 and 2009, the company seems to be bouncing back quite well, with earnings rising by a massive 383% from 2009 to reach Rs3.6 billion for the financial year ending December 31, 2010. Nonetheless, it is less than the pre-financial crisis high of Rs5.7 billion reached in 2006.
The current year seems to have gotten off to a better start. First quarter profits are up 39.1%, reaching Rs1.15 billion.
Banks in Pakistan are relatively more profitable than even their emerging markets peers due to the high interest rate spread, of the difference between what the bank charges its borrowers in interest and what it pays out to its depositors as interest on their deposit accounts.
Nathani claimed that banking spreads are high due to high inflation, which in turn causes high rates of lending. “When overall interest rates decline, the spreads will also come down,” he said