2017 to be best for Islamic financial market

Due to sharply declined trends in Oil prices, slow economic pace & Arab spring, the trend of the Islamic Banking & Finance had been slow paced in 2016 in Middle East and Arab region, while a sufficient development was recorded in Africa, Central Asia & Far East. especially in African market. For the broader understanding of Islamic Finance Industry, we can divide Islamic Finance industry into five major components e.g. Islamic Banking, Sukuk, Islamic Fund/Asset Management, Takaful & Islamic Microfinance. Islamic Banking is the greatest contributor in Islamic Finance Industry, which contributes 80% to the total $2.3 trillion Islamic finance industry, while Sukuk contributing 14% volume in Islamic Finance industry and ranked as second largest contributor, Islamic Fund/Asset management Industry with 3% is ranked as 3rd while Takaful Industry is contributing 2% with slow pace and Islamic Microfinance contributing 1% stands as last. By 2017, the total volume of Islamic Finance Industry is expected to be $2.7 trillion.

Indonesia, Malaysia, Turkey, Pakistan, U.A.E, Qatar, Saudi Arabia, Kuwait & Bahrain are prominent where the contribution of their total assets of Islamic Banking is 82% to the Global Islamic Banking market. According to the increment in assets of Islamic Banking, Kingdom Saudi Arabia stands first, but as per new Islamic Banking market entrance, Morocco, Uganda, China & Russia are expected to have a good start in Islamic banking by 2017.

According to a research by Mr. Muhammad Zubair Mughal, Chief Executive Officer – AlHuda Center Of Islamic Banking & Economics (CIBE); There will be a steady growth of Approx 13% – 15% will be shown in Islamic Finance market during 2017 and the total volume of Islamic Finance will crossed 3 trillion USD figure by 2020, which will be accompanied by a definite addition of Sukuk alongwith Islamic banking. While the Sukuk market in Malaysia, Pakistan, U.A.E, Turkey, Central Asian countries and Africa seem determined in 2017. According to the prospects, Sukuk worth 78 billion dollars approximately are expected to be issued which can define the total volume of outstanding Sukuk up to 350 billion dollars. It should be clear that ICD will be rendering its contribution in flourishing Sukuk at global landscape especially in African countries.

It should be clear that Takaful Industry, unfortunately, has lacked far behind in 2016. While Takaful companies are found default in Pakistan, South Africa and some other countries due to lack of regulations, performance Issue & various Models etc. In spite of all these reasons, it is expected that the total volume of Takaful industry will reach up to 25 billion dollar till the end of 2017. As far as Islamic Microfinance is concerned, certain positive changes have been seen in 2016, new microfinance models were introduced with the amalgamation of Micro-Takaful, Fintech, and social finance along with various Islamic microfinance products. It is hope that the volume of Islamic Microfinance could reach up to $2 billion dollars globally by the end of 2017 while the total number of Islamic Microfinance Institutions will reach up to 400 Institutions/Bank.

In 2017, many new Islamic Finance markets are seen to be emerging on the horizon in the world. If we see on the regional basis, in East Africa, we find that Uganda has recently passed an Islamic Financial bill through Parliament, Islamic banking & Finance in Kenya and Tanzania is already flourishing very well. Morocco & Tunisia are emerging markets in North Africa while Nigeria, Senegal, Mauritania, Ivory Cost in West Africa has an organized system of Islamic Finance while Sukuk is also strengthening its roots in these regions. As far as Central Asia is concerned, 2017 will prove to be a better year with respect to the previous year.

Published in Pakistan Observer, January 06th 2017.

UBL celebrates inauguration of new Head Office with its stakeholders

UBL’s new Head Office was inaugurated on 19 December 2016. To celebrate this landmark achievement, the Bank hosted a grand dinner for its key stakeholders at the Mohatta Palace in Karachi.

Sir Mohammed Anwar Pervez, OBE, HPk, Chairman of the Board of Directors of UBL and Bestway Group UK was the Chief Guest at the evening. Dr. Ishrat Hussain, ex -Governor-SBP, Mr. Muneer Kamal, Chairman – Pakistan Stock Exchange, Mr. Zameer Mohammed Choudrey, CBE, Director UBL, Mr. Wajahat Husain, President & CEO, UBL, members of UBL’s Board of Directors, senior bankers, diplomats and prominent personalities from leading business houses attended this event. The event included drone-eye footage of the iconic building, speeches by some of the distinguished guests and a spectacular sound & light show.

Published in Daily Times, January 06th 2017.

NBP rules out misleading reports or Rs. 1.5 Billion fraud at the bank

KARACHI: Media reports have implied that a fraud of Rupees 1.5 billion was committed at National Bank of Pakistan and that the bank incurred a loss of this amount. National Bank of Pakistan firmly denies these allegations.

In some media reports it is also implied that National Bank of Pakistan has caused a loss to our valued client, Abandoned Properties Organization (APO). We again categorically deny these allegations. National Bank of Pakistan has acted upon the client’s instructions with respect to the activities in the APO account.

In the course of several banking transactions in 2014-2016, valid instructions were received from APO’s Authorized Signatories. The client’s instructions requested National Bank of Pakistan to remit the funds to Habib Bank Limited (HBL) for onward credit to Abandoned Properties Organization. After carrying out the appropriate level of due diligence, National Bank of Pakistan remitted these funds in accordance with the client’s instructions, using the RTGS system, a secure electronic payment prevalent in the country.

However, very recently we received a query from Abandoned Properties Organization concerning their account activity, and within a few days, National Bank of Pakistan completed an investigation which uncovered the fact that Habib Bank did not credit the client with the funds in accordance with the instructions that National Bank of Pakistan provided in the RTGS instructions.

National Bank of Pakistan acted swiftly and registered a case with the FIA. Several people have been apprehended by the FIA, including at least 4 past and present senior officials from APO (having the authority to operate their account with National Bank of Pakistan); one or more Habib Bank officials; and a junior executive of National Bank of Pakistan. This lady has been suspended by the bank and does not represent the bank in any capacity. She remains in the FIA’s custody.

National Bank of Pakistan is fully cooperating with the regulatory and investigative agencies in this case and is committed to securing the interests of its valued client, Abandoned Properties Organization.

Published in The News International, December 30^th 2016.

SMEs come on banks’ radar

Lending to small and medium enterprises of both conventional and Islamic banks has begun to rise due to higher credit demand.

Conventional banks’ lending to SMEs saw a sudden rise of 9.2pc or Rs27.40bn, during July-September. And, SMEs borrowing from Islamic banks, and from Islamic banking windows, also recorded a modest increase of 0.4pc or Rs2.73bn.

The sharp increase in SME lending by conventional banks is partly due to redefined category-wise advances in the light of the revised prudential regulations. But partly, it is also due to efforts by some banks to chase, and in some cases, exceed targets set by the SBP at the beginning of this year; set keeping in view the size of the banks, their branch networks and existing SME lending portfolio.

Financing of Islamic banks is also attributable to SMEs’ appetite for Shariah-based borrowing.

They also boast of the recent increase in overall funding of Islamic banks (but not Islamic banking branches of conventional banks) that has boosted their financing-to-deposit ratio to 52.8pc (as of September 2016), against 45.5pc advances-to-deposit ratio of conventional banks.

“This alone shows that Islamic banks as such are lending more freely than conventional banks. And the SME sector, of course, offers the best lending opportunity to those Islamic banks that have convenient financing products,” says a senior executive of Meezan Bank.

Bankers say whereas treating a movable property as collateral for an SME loan would accelerate SME financing, setting up credit guarantee companies is the actual way forward

In May this year, the central bank revised the prudential regulations for SMEs and, among other things the per-party maximum exposure limit of small enterprises (SEs) was increased from Rs15m to Rs25m.

To facilitate restructuring and rescheduling of SEs loans, the condition of paying 50pc of the restructured loan for immediate declassification was softened to 35pc.

Executives of both conventional and Islamic banks say that these two things led to larger off-take of loans of SEs and, as a result, pushed up overall SME lending.

They further add that during the July-September quarter, lending to SMEs was more broad-based. In addition to traditional working capital financing, banks lent heavily for their fixed investment and trade finance requirements.

In these two categories, conventional banks lending to SMEs went up to Rs5.6bn and Rs7.4bn by September this year, from Rs4.4bn and Rs1bn respectively in the same period last year. SMEs borrowing for working capital that stood at a negative Rs10.9bn also shot up to Rs14.4bn during this period. Therefore, it seems that a turn-around in SME lending took place, between October 2015 and September 2016.

A similar break-up of SME financing by Islamic banks could not be obtained. But a few senior Islamic bankers told this writer that these banks, too, are now lending more to SMEs for building fixed assets and financing their domestic and foreign trade.

They say that growth in the domestic economy, particularly in its services sector, has encouraged SMEs to expand.

On the other hand, as domestic trade expands and opportunities for SMEs to market their products online keep growing, demand for trade finance in the SME sector is also rising.

SMEs in the supply-chain of listed companies eligible for claiming the Shariah-compliance tax-rebate of 2pc from this fiscal year, are also working aggressively as the tax-rebate has created more financial room for their client companies to streamline contractor payments.

Many SMEs, especially those in trading, are generally associated with all big segments of the corporate sector.

Operators of SMEs acknowledge some improvement in the financial environment but point out that there is still a need for banks to do a lot more to facilitate them. At the 10th annual SME forum held in Karachi a few months ago, the participants talked about the need for developing a 10-year master plan with a clear road map for SME financing.

They also said that with the possibility of countless ancillary businesses coming up in the future through the China-Pakistan Economic Corridor project it was high time to allow SMEs freer access to formal finance.

According to them faster progress was required on the proposed formulation and implementation of the Secured Transaction Law. Through this proposed law a registry would be created to allow movable items as loan collateral. This, they hoped, could be a game changer for the SME sector in Pakistan.

Bankers say whereas treating a movable property as a collateral for an SME loan would surely accelerate SME financing in future, the ongoing SBP credit guarantee scheme that covers 40pc of financial risks in lending to small and medium rural enterprises has helped banks make additional loans to SMEs. But they point out that setting up credit guarantee companies is the actual way forward.

These companies could be established by provincial governments (to promote SMEs within their provinces) and trade lobby groups of SMEs (that are the real stakeholders in SME development).

The Punjab Small Industries Corporation has already allocated funds for this purpose and officials of the Sindh Board of Investment say they are willing to work on the idea.

Published in Dawn, Business & Finance weekly, December 19th, 2016

Banks lead in compensation for executives

In the country, the pay and perks for the man holding the top job — Chief Executive Officer or Managing Director — naturally vary from company to company.

It is mandatory for listed companies to disclose the ‘remuneration paid to CEOs, directors and executives’ in their annual reports.

A random selection suggests that presidents of banks are the most handsomely rewarded lot. Managing directors and CEOs at multinational firms and large local profitable companies also have little to complain about, but the heads of public sector companies and family owned businesses generally —though not always — grumble about the tight-fisted policies of their boards.

Although most company bosses write seven-digit cheques for themselves, they still eye their peers in banks with a mixture of envy and jealousy

Although, most company bosses write seven digit cheques for themselves, they still eye their peers in banks with a mixture of envy and jealousy. For financial year 2015, President of United Bank Limited earned a sum of Rs127m; MCB Rs86m; HBL Rs75m; Bank Alfalah Rs97m while the President of the National Bank of Pakistan received an aggregate Rs71m, including managerial remuneration of Rs42m.

What could be the cause of the wide variation from bank to bank? “At most banks, the pay and perks of the president is performance based, termed ‘pay for performance’”, Shaukat Tarin, former finance minister of Pakistan and now adviser to Silk Bank told this writer.

On average, he said, a bank president could be presumed to earn between Rs70m to Rs100m a year. And he went on to disclose that most banks do not show what really amounts to the icing on the cake: Bonuses. “Bonuses are paid at 50 to 100pc of the yearly pay package”, Tarin revealed, but cautioned that where results fell short of around 80pc of the targets, presidents also had to forego bonuses.

In addition to managerial remuneration, most banks and large firms also offer house rent, utilities, medical leave and reimbursements; free use of bank’s cars, household equipment, post retirement benefits and free membership of clubs. All of which makes a fabulous amount compared to the pocket money that a large number of small and medium sized local company boards pay to the CEOs running their firms.

A random selection of multinationals shows that Nestle Pakistan gave the CEO Rs81.1m for the company earned profit after tax of Rs8.7bn in 2015, while the largest pharmaceutical firm in Pakistan GlaxoSmithKline Pakistan, rewarded Rs54m to its CEO in 2014.

Attock group of companies’ chairman, Ghaith R Pharaon, a Saudi business tycoon holds the majority shares in Pakistan Oilfields Limited (POL). The company posted profit after tax at Rs7.2bn in the latest year and handed out Rs21.4m to the CEO.

Bestway Cement — the country’s largest cement company by capacity with 55.4pc shares held by Bestway (Holdings) Ltd, UK — recorded earnings of Rs11.9bn, and the CEO was paid Rs24m in managerial remuneration without including bonuses and other benefits.

A sample of the pay scale of state-controlled firms is provided by the largest oil and gas exploration and production company in the country, Oil and Gas Development Company (OGDC) of which the controlling stake of 67.5pc vests with the government. The company earned Rs60bn for the year and the CEO was paid a remuneration of Rs39.4m, almost a half of the average pay scale of a bank’s CEO.

Although many top men of public sector entities value things other than monetary compensation, such as the public spotlight, yet the yearning among other people employed to do the same kind of work in other entities, is understandable. “What the chief of a major bank makes in four days, most of us get after toiling throughout the month”, one CEO of an independent power plant grumbles.

Two examples of family-controlled entities could be Nishat Mills, the largest composite textile mill in the country. For 2015, the company earned Rs3.9bn in profit and its CEO was paid Rs28.9m as remuneration along with free housing facility.

The country’s largest sugar mill, J.D.W Sugar, 26.6pc of whose share are held by the businessman turned politician Jahangir Khan Tareen, made Rs1.5bn in profit in 2015 and paid the company CEO the generous sum of Rs102m including a bonus of Rs24m.

Interestingly, as long as they hold the reins of their companies, the top bosses may be poles apart in terms of pay and perks; but on departing — whether voluntarily or not — both carry away bounties.

Some years ago when a top corporate boss bade his Islamabad-based company goodbye, he was given a hefty managerial remuneration, tied to another package in lieu of ‘compensation for loss of office’.

Warren Buffet, the universally acclaimed investment guru, once remarked: “Getting fired can produce a particularly bountiful payday for a CEO. Indeed, he can ‘earn’ more on that single day, while cleaning out his desk, than an American worker earns in a lifetime of cleaning toilets”.

Published in Dawn, Business & Finance weekly, December 12th, 2016

Articles

Banks enter new year cautiously optimistic

To remain profitable in 2017, banks will have to focus more on core banking along with improving delivery of services. They will also have to make internal controls stronger to ensure full business rule compliance to sustain the gains of the recent past.

Senior bankers say individuals and businesses can expect better banking services in the upcoming year.

There are some areas on which banks will be more focused. These are:

Senior bankers say individuals and businesses can expect better banking services in the upcoming year

(1) development of internal controls against money laundering, fraud and cyber security vulnerabilities (2) deepening and broadening the bank credit market and contributing more towards financial inclusion (3) tapping business opportunities in the CPEC related projects (4) sustaining the gains of banking sector consolidations and (5) building capacities to align banking operations with new dynamics of the commodities, stocks and real estate markets.

“These and maybe a few other things are already on top bankers’ mind. Banks are going to do lots of things in each of these areas”, said a senior official of the Pakistan Banks Association. “Political and macroeconomic stability at home and in the region, and emerging realities in global and regional financial markets, will also weigh on whatever we do.”

Islamic banking, as such, and agricultural, SME and micro financing by both Islamic and conventional banks, also look set to make a better showing in 2017, top bankers say.

In the past few years, weak internal controls at banks were at the root of a few actual and attempted money laundering, banking fraud and grave violation of banking regulations, cases.

Closer liaison between the Federal Investigation Agency and the SBP, and a watchful national media and judiciary helped in keeping such white-collar crimes to the minimum. But the lessons learnt, led the SBP to push banks towards greater self-discipline and stronger internal controls to combat the above stated risks.

Simultaneously, the central bank also asked banks to come up with a master-policy to align all their internal policies with the broad objectives of the central bank’s policies in each and every area of banking, including treatment of banking staff and delivery of quality services to customers.

“In 2017, you will see individual banks, the Pakistan Banks Association and the SBP working more closely to meet one basic objective: providing clean, qualitative and more inclusive banking to all,” says an official of the Association.

For the last few years, banks’ credit flow towards agriculture, SMEs and micro-enterprises has increased. “This trend is going to remain in sight and will have to be strengthened,” according to a former president of United Bank Ltd.

Deepening of the credit market is a big challenge that, if met properly, will give banks lots of business opportunities in 2017.

It’s a challenge in terms of being prepared to take the step in terms of being responsive to market needs. Banks that meet this challenge are going to tap lots of potential credit demand.

Companies are becoming more organised, getting registered to qualify for concessional credit under various schemes and trying to participate in big business through the CPEC related, and non CPEC public and private sector, projects.

Housing construction and real estate development, iron and steel manufacturing, pharmaceuticals, food processing, agro-based industries, chemicals, fertilisers, technology-driven start-ups, transport, marketing and distribution, networking, retail and wholesale businesses are taking root and expanding fast.

“Some of them are cash-rich, others are not. The latter creates a direct credit demand and even for the former, bank funding is welcome where employing corporate cash is less profitable,” says a senior executive of Habib Bank Ltd.

How well banks can lend more to the private sector and reach out to potential clients, and how efficiently they can participate in the project financing business coming up via the CPEC infrastructural projects, will determine their profitability in 2017 and beyond, top bankers say.

In nine months of 2016, growth in banking profits has already shown signs of weakening due to historically low spreads and falling yields on government debt papers.

Those banks that relied heavily on excessive investment in government bonds in previous years realised in 2016 that doing this by ignoring private sector credit demand was an unwise policy.

Almost all banks corrected themselves because of which private sector credit flow saw a boost. But they will have to continue this correction, and others will have to follow course, if banks want to remain profitable in 2017, banking sector analysts believe.

They also say that since commodities, stocks and real estate markets are undergoing some key changes, banks will have to keep an eye on them and re-align their operational strategies accordingly to make money through investment in these areas.

The recent sale of 40pc stake of the Pakistan Stock Exchange to a Chinese consortium, for example, is going to deepen the country’s bonds market, attract new and more informed investors into the stock market.

Ongoing efforts to regularise the real estate sector and the growing use of web portals for land and housing units’ price finding, along with chances of growth in the business of real estate investment trust (REIT) are going to have a big impact on the way banks invest in real estate and offer housing finance and land development loans.

Similarly, the commodities markets in Pakistan are becoming more interlinked with regional and international markets, while even domestically, price finding and deal making in commodities is undergoing key changes as on-line business activity grows and as the Pakistan Commodity Exchange continues to spread it wings.

Published in Dawn, Business & Finance weekly, January 2nd, 2017

Articles

Bank Alfalah issues country’s first Discount Debit Card

KARACHI: Bank Alfalah has entered into partnership with a prominent e-commerce website for issuance of Pakistan’s first ever discount debit card.

The agreement was signed by Amaar Naveed Ikhlas of Bank Alfalah and Fahad Mehmood of Lootlo.pk here at a local hotel.

Under the agreement, Bank Alfalah will enable Lootlo.pk to offer real-time offline discounts through the “Go Lootlo Wallet” discount debit cards, a first-of-its-kind initiative in Pakistan.

Lootlo.pk is one of Pakistan’s oldest discount deals website providing discounted online shopping since July 2013.

It offers a wide range of discounted merchandise and services including restaurants, salons, hospitals, car services and products like clothing, footwear etc.

Through these debit cards, customers can avail discounts at over 500 retailers with over 2,000 outlets all over Pakistan.

With Union Pay International being the exclusive Payment Gateway Partner, “Go Lootlo” debit cards will be accepted all over Pakistan and internationally, including over 30 special discounts available in Dubai alone.

Another great advantage of the “Go Lootlo Wallet” is it offers free Personal Accident Insurance to all cardholders with no minimum deposit condition, a service for which conventional banks require customers to have a minimum deposit or balance maintenance conditions.

Moreover, the “Go Lootlo” cardholders enjoy the additional benefits of Free Personal Accident Insurance including Accidental Death of Rs. 200,000, Permanent Disability/Temporary Disability of Rs. 200,000 and Accidental Hospitalization benefits of Rs. 30,000.

Providing added ease and convenience to the customers, the cards can be topped-up at any of the Bank Alfalah branches or agents spread

across the country or “Go Lootlo” branches or agents nationwide.

Commenting on the development, Amaar Naveed Ikhlas of Bank Alfalah said the partnership will set higher precedent through innovative and value-added products and services for e-commerce customers.

Fahad Mehmood of Lootlo.pk was confident that the partnership will go a long way in ushering ease and access to the mutual customers of the two partners besides inspiring customer loyalty and credibility towards financial inclusion and e-commerce in Pakistan.

Bank Alfalah manages a leading-edge digital ecosystem of a host of digital products and services to promote digital technology in Pakistan. It lends its products and services to various banking and financial players to cater to the needs of Pakistani customers.

Copyright APP (Associated Press of Pakistan), 2017

Published in BusinessRecorder, Banking & Finance, January 03rd 2017.