Best bank:
Muslim Commercial Bank
General Pervez Musharraf, or since June 20 President Musharraf, and his technocrats and businessmen are making a difference in the battle to clean up the financial sector. Consolidation is being pushed by the central bank. It believes the banking industry is far too fragmented. In an attempt to force the issue the capital adequacy requirement of commercial and investment banks is being raised.
At the moment it stands at PRs500 million ($8 million), increasing to PRs750 million by the end of the year. Although painful, this will lead to stronger banks.
Cronyism, which was so rampant under the democratically elected administrations of the past, led the government banks to build up impressive portfolios of bad assets. It has all but been stamped out.
Estimates for the sector’s non-performing loans range between 40% and 20% of the banks’ portfolio. These will decrease. Bankers are now held accountable for the loans they make and in a country not famed for its comfortable jails, they will definitely be taking more care about their lending practices.
Although Pakistan experienced disinvestment in 1998 after deciding to test nuclear weapons, this did its domestic banks a favour. As foreign banks either scaled down or closed their operations the local banks built up their market share. Bank of America pulled out completely.
The main business remains retail lending, since corporate finance activity has all but dried up over the past few years, and banks now focus on short-term lending opportunities. The award for best bank goes to Muslim Commercial Bank. And not just because it is the only bank to have an ATM installed in the central bank, State Bank of Pakistan. Its ATM network was already the largest. Like most of the banks in Pakistan the products on offer are plain vanilla, but in the IT field it is maintaining its edge. It has 136 online branches and 650 standalone computerized branches.
Being the most IT savvy means the bank is in a relatively strong position to offer the debit and credit card products that other Pakistani banks now struggle to provide. With margins being squeezed in the interest-earning business the bank moved successfully into the fee-earning business. By leveraging off its large branch network and IT infrastructure, MCB has entered into several agreements with the foreign banks to help with local remittances and cash-collection transactions on a commission-sharing basis.
The bank is also financially sound. Profits after tax increased 29% even after provisions increased 113%. The ratio of NPLs to total loans is comfortably below the sector average at 13.9%, a steep drop from 17.4% the previous year.
