HBL’s Aurangzeb sees brighter times for Pakistan despite bailout


Chris Wright
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In a country with twin deficits and a 13th bailout in recent memory, one might wonder if former JPMorgan banker Muhammad Aurangzeb regrets becoming Habib Bank CEO – but instead he sees a path to a better outlook for his country.

Aurangzeb left a successful career job at JPMorgan earlier this year to take the reins at Habib Bank (HBL), Pakistan’s biggest lender.

It seems a grim time to take such a role – Pakistan faces twin deficits and has just agreed a tough bailout with the IMF – but he sees reasons to be positive.

Euromoney meets Aurangzeb in Bali early one morning on the sidelines of the IMF annual meeting. It’s an opportune time and place to meet, as the previous day Pakistan met with the IMF to seek its 13th bailout since the 1980s.


Aurangzeb, HBL

Aurangzeb sees the macro position as one of three elements influencing the outlook for banks in Pakistan, the others being technology and the regulatory environment, but the macro is certainly the one in the headlines.

He calls the twin deficit “devilishly structural”.

“On the fiscal side, pretty simply, we need to increase the tax base,” he says. “On the current-account deficit side, remittances have been relatively robust; the issue has been exports not being as strong as one would expect,” partly, he says, as a consequence of the currency peg being set too low.

However, despite that, he says “by and large when rates are going up it is generally good news for the industry”.

At the end of the 2017 financial year, HBL had almost Rp2 trillion in deposits, 86.4% of which was current and savings accounts; while some of that will be repriced, so will the loan book.

“Also, normally when we have volatility in exchange markets, it’s good for the industry if you’re on the right side of it,” says Aurangzeb. “Clients come in for their hedging needs and there is a boost to the treasury side.”

The optimistic view of the bailout, he says, “is that once the country gets into an IMF programme it creates a floor, in terms of bringing a level of certainty”.


Once it’s in place, he says, he’s impressed with things that new prime minister Imran Khan and his finance minister Asad Umar want to do, notably state-owned enterprise (SOE) reform and capital-markets activity.

“The banks will have plenty of opportunity to be involved with that,” adds Aurangzeb.

That said, he has views – which he has expressed to government – about how SOE reform should proceed.

“We should not rush into privatization,” he says. “We should corporatize, restructure, then talk about privatization.

“The presentation we have made to the finance minister is that we should follow the SASAC [State-owned Assets Supervision and Administration Commission of the State Council] structure in China. It needs to be more a SASAC discussion than a Temasek discussion.”

By this, Aurangzeb means a model of bringing SOEs under a single umbrella, taking charge of reforming them, and getting them ready for the markets, as opposed to a more classic sovereign wealth fund idea.

You might get a view that political parties don’t agree on many things, which is fine, but one area where there appears to be absolute agreement is the relationship with China and the continuity of CPEC 
 - Muhammad Aurangzeb

He has told the government something else, too.

“The banking industry providing its own balance-sheet support can only go so far,” he says. “I’ve been out for 18 years, and my view is the country has taken a reverse gear in terms of capital-market development.

“We have to open it up: an institutional and retail market, mutual funds, pension funds. If you want to avoid crowding out the private sector, you have to get the capital-markets discussion moving.”

The government has used the international capital markets before, in euros and dollars, but Aurangzeb would like to see it diversify further, including a panda bond. Indeed, HBL has held discussions with CICC to work on an inaugural panda issue.

This brings us to China.

Arguably, no country has been so central to China’s Belt and Road Initiative (BRI) ambitions as Pakistan; locally people use the abbreviation CPEC, for China-Pakistan Economic Corridor, as a shorthand to cover around $60 billion of projects involving Chinese funding in the country.

Habib Bank – which has a branch in Urumqi in Xinjiang region, and a rep office it is upgrading to a branch in Beijing to deal with SOEs in China directly – has handled more BRI projects than any other lender in Pakistan already.

It has a team of bankers in Karachi and Islamabad dedicated to a China desk, and an office in Gwadar, where China is building a port.

However, is this work being done on sustainable, commercial terms?

“If you look at the evolution of Belt and Road’s financing, it started with the policy banks and Silk Road Fund, and then moved across to commercial banks like ICBC,” says Aurangzeb.

“From our perspective, we have been involved in arranging and advising, but also the local currency component, and in some of the onward lending programmes where we get funding from China Development Bank. From a revenue and profitability perspective, these have been good assignments.”


The bank has also found productive business in hedging flows.

“That’s why we are big in suggesting a lot of these projects should be invoiced and settled in RMB, and energy projects should be RMB-indexed,” he says.

“Clients actually have a unique opportunity. Once you open a letter of credit in RMB, it is the only currency in which forward cover is available.”

He believes the change of government will make no difference to engagement with China.

“You might get a view that political parties don’t agree on many things, which is fine, but one area where there appears to be absolute agreement is the relationship with China and the continuity of CPEC,” says Aurangzeb.

As to worries about indebtedness to China, he says the key is for the country to capitalize on its infrastructure, to do more manufacturing and trade through what has been built, to generate the money to service the debt. He talks about a “’Made in Pakistan’ thought process”.

As to the other influences on banking, Aurangzeb says: “I’m very clear that if you don’t start thinking that you are an IT company with a bank licence, you will struggle.”

He notes with interest Telenor receiving a microfinance licence, with Ant Financial investing $184.5 million for a 45% stake in the new bank, giving it ready access to Telenor’s more than 20 million mobile phone users; HBL, the largest banks in the country, has 12 million customers out of a national population of 220 million.

He has brought with him some lessons from JPMorgan, where he was CEO of the global corporate bank for Asia-Pacific, following earlier roles at Citi, ABN Amro and RBS.

“I have no doubt in my mind JPMorgan is the best banking brand in the world,” he says. “What Jamie Dimon says encapsulates everything: first-class business in a first-class way.”

Aurangzeb wants to bring the same principles to HBL, not just in terms of client experience but what he calls lines of defence, in terms of diligence and compliance.

“If you are bringing garbage in at the front end, the second and third lines of defence can only do such much,” he says.

“What I learned at JPMorgan is: you own the risk. That’s exactly the kind of discipline I’m attempting to bring into HBL.”