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Raza sees unique economic opportunities
Pak located in mid of world capital pools
Interview
Amanullah Khan
Pakistan has been relatively less affected by the financial Tsunami and economic recession being faced by the developed economies primarily due to low integration with the international financial regime. In fact, there is a unique opportunity in store for Pakistan.
These heartening remarks were made by Syed Ali Raza, Chief of the National Bank of Pakistan and as a financial guru in an interview with Pakistan Observer.
Describing him as a financial guru was not just to please any body. In fact he attained this title by giving an unbelievable rise to the profit earnings of his banks from the level of Rs. One billion in 2000 to Rs28 billion in 2007 as President of the National Bank of Pakistan which speaks itself of the unprecedented achievement. He led the banks to earn various distinctions including the title of Best emerging market bank from Pakistan for the year 2006 Best foreign exchange Bank award for the year2005 and 2006 by worlds leading financial journal Global Finance, Bank of the year award for the year 2001, Bank of the year award by Banker of Financial Times,, Kissan Times Award for the year 2005 by the then Prime Minister Shaukat Aziz,
Though Ali Raza basically is a man of the financial world but speaks as a professor of economics by pointing out at such areas which could enable our economic managers to steer the national economy out of hot waters to safer zone in the days to come.
While giving his expert opinion regarding impact of the global financial crisis was not so harsh on Pakistani banks because our financial system was comparatively not deeply affiliated with the world financial system, in fact it was a blessing in disguise to save our skin in a way.
Our GDP, foreign investment, exports or trade as percentage to the GDP was much less than the other countries because our low affiliation with the international financial world. This low affiliation with the international financial regime was a blessing in disguise in a way helping Pakistan escaping from a major financial setback like other countries having much larger percentage to their GDP as compared to Pakistan with a total two way trade roughly estimated around $50 billion which consists over 20billion exports and $30 billion Imports which cumulatively comes around 33 percent to our GDP having a size of around $160 billion. Hence the impact of the financial meltdown was not as severe as suffered by other countries.
In fact the banking system in the United States and Western economies suffered heavily because of their excessive household debt percentage to the GDP where as the house hold debt given by Pakistan Banks was merely 1 percent to the GDP as compared to 70-80 percent to the GDP in the United Kingdom and the United States, so it was quite manageable for Pakistan banking system. In fact, the impact of household debt was almost nominal in our financial system as the major portion of advances is basically meant for industries, SMEs and of course for the agriculture.
Our consumer loan portfolio was commenced three four years back and its size was also well within affordable limits while the banks in the United States were irrationally lending rather chasing the customers against cut throat interest rates due excessive liquidity with them. Similarly, the banks in Iceland also faced the same problem of excessive liquidity. You just imagine that banks, in Iceland with a population of hardly three lakh, had a huge deposit base of over $150 billion having no option to lend in an aggressive fashion. Look at General Motors where pension payments were greater than operational revenues. See the financial woes of the Eastern Europe where the financial meltdown had a crippling effect on the countries like Poland, Hungary, Romania etc because they attracted heavy deposits like Iceland Model. Their companies were heavily funded by the US and other European Banks. Now these countries facing the dollar denominated debt while their local currencies devalued by more than 50 percent.
Pakistan banking system was smart enough they did not indulged in irrational lending while our companies, with a few exceptions, are not burdened with foreign currency debut as their debt was largely rupee based while in the Eastern Europe every company had a foreign currency denominated debt. In fact due to heavy pressure of excessive liquidity the East European banks even compromised the quality of the borrowers and aggressively lent while in our case, the banking system in Pakistan is the first generation stage hence we did not indulged in that kind of ventures.
Hence the banking system in Pakistan banks was lucky to have minimum integration with the international financial regime.
In fact, Pakistan having a huge population of around 160 million plus offers great opportunities within the local market. The best example for such kind of financing is Mexico where over 50 percent of industrial output is meant for the US market, since the American market is sinking consequently the Mexican industries facing the brunt of the US economic recession. Where Mexico would go to sell its products now? is a relevant question. Why Japan, South Korea, Thailand, Brazil etc are under heavy pressure because they not finding outlets for their products. Since they are export based economies now facing difficulties to sell their industrial out put naturally due to extremely low demand in the US and the European markets.
Contrary to that we can set up industries focusing more at the local market demand as far as Foreign Direct Investment (FDI) we were not entirely depending on FDIs. Though Pakistan received FDI during last three four years but its share was not so overwhelming which could have a crippling effect on our system.
The NBP Chief was optimistic about the economic future of Pakistan and said in fact it was not as bright as it is today! To substantiate his views regarding bright future of Pakistan, he pointed out the areas like huge domestic market of 170 million populations which could lend a strong hand. In fact, Pakistan cannot depend on exports alone in the present global scenario. Look at our textile sector, a large number of textile units facing problems because the declining demands in the European or US market. In fact, those economies excessively depending on exports or those which had attracted huge foreign investment such as Dubai are in problem as both the models i.e. exports based or foreign investment have proved a failure.
So we have come to the conclusion that we can and we should depend on our local market. You know there are only 12 countries in the world which have strength of 100 million plus population, Pakistan being one of these countries stands at number 6. In this backdrop we have an indigenous market which has the potential to attract huge investment especially for building up our infrastructure. Based on huge population we are in need of construction of infrastructural projects while our returns are usually attractive.
Another plus point is the ideal location of Pakistan because we are located in the middle of two great economies which are the pools of the capital one is Middle East and the other is China. He predicted that in the next five to ten years there is a great scope for setting up trade and industrial zones in this part of the world. The agriculture is another strong point for Pakistan economy. The only question is to optimize the potential of this potential area which not only can make Pakistan a self sufficient country but also cater to the export market because it food is the only market which would always be available being basic human need. That was one of the reasons that we did not receive the dent of the world financial disaster being at the low end as compared to those having Hi-Tech export markets.
When asked to share his views regarding revival of the capital market in Pakistan, Ali Raza said that the regulators are in the process of taking corrective measures to put back the market on the track. One of such steps is the exciting decision of allowing the listed companies to buy back their shares. For example, at present the NBP scrip was at Rs250 at the time when the index was operating at 15700 points level and droped to Rs175 at the index level 1200 and now it has come down to the level of Rs55-60 but interestingly the yield was dropped and those holding the shares enjoying high yield level. After the approval of buy back provision National Bank as well as other listed companies would certainly buy back the available shares. This step would certainly give a boost of the market and restore the confidence of the investors.
Top Stories | Pakistan Observer Newspaper online edition
Pak located in mid of world capital pools
Interview
Amanullah Khan
Pakistan has been relatively less affected by the financial Tsunami and economic recession being faced by the developed economies primarily due to low integration with the international financial regime. In fact, there is a unique opportunity in store for Pakistan.
These heartening remarks were made by Syed Ali Raza, Chief of the National Bank of Pakistan and as a financial guru in an interview with Pakistan Observer.
Describing him as a financial guru was not just to please any body. In fact he attained this title by giving an unbelievable rise to the profit earnings of his banks from the level of Rs. One billion in 2000 to Rs28 billion in 2007 as President of the National Bank of Pakistan which speaks itself of the unprecedented achievement. He led the banks to earn various distinctions including the title of Best emerging market bank from Pakistan for the year 2006 Best foreign exchange Bank award for the year2005 and 2006 by worlds leading financial journal Global Finance, Bank of the year award for the year 2001, Bank of the year award by Banker of Financial Times,, Kissan Times Award for the year 2005 by the then Prime Minister Shaukat Aziz,
Though Ali Raza basically is a man of the financial world but speaks as a professor of economics by pointing out at such areas which could enable our economic managers to steer the national economy out of hot waters to safer zone in the days to come.
While giving his expert opinion regarding impact of the global financial crisis was not so harsh on Pakistani banks because our financial system was comparatively not deeply affiliated with the world financial system, in fact it was a blessing in disguise to save our skin in a way.
Our GDP, foreign investment, exports or trade as percentage to the GDP was much less than the other countries because our low affiliation with the international financial world. This low affiliation with the international financial regime was a blessing in disguise in a way helping Pakistan escaping from a major financial setback like other countries having much larger percentage to their GDP as compared to Pakistan with a total two way trade roughly estimated around $50 billion which consists over 20billion exports and $30 billion Imports which cumulatively comes around 33 percent to our GDP having a size of around $160 billion. Hence the impact of the financial meltdown was not as severe as suffered by other countries.
In fact the banking system in the United States and Western economies suffered heavily because of their excessive household debt percentage to the GDP where as the house hold debt given by Pakistan Banks was merely 1 percent to the GDP as compared to 70-80 percent to the GDP in the United Kingdom and the United States, so it was quite manageable for Pakistan banking system. In fact, the impact of household debt was almost nominal in our financial system as the major portion of advances is basically meant for industries, SMEs and of course for the agriculture.
Our consumer loan portfolio was commenced three four years back and its size was also well within affordable limits while the banks in the United States were irrationally lending rather chasing the customers against cut throat interest rates due excessive liquidity with them. Similarly, the banks in Iceland also faced the same problem of excessive liquidity. You just imagine that banks, in Iceland with a population of hardly three lakh, had a huge deposit base of over $150 billion having no option to lend in an aggressive fashion. Look at General Motors where pension payments were greater than operational revenues. See the financial woes of the Eastern Europe where the financial meltdown had a crippling effect on the countries like Poland, Hungary, Romania etc because they attracted heavy deposits like Iceland Model. Their companies were heavily funded by the US and other European Banks. Now these countries facing the dollar denominated debt while their local currencies devalued by more than 50 percent.
Pakistan banking system was smart enough they did not indulged in irrational lending while our companies, with a few exceptions, are not burdened with foreign currency debut as their debt was largely rupee based while in the Eastern Europe every company had a foreign currency denominated debt. In fact due to heavy pressure of excessive liquidity the East European banks even compromised the quality of the borrowers and aggressively lent while in our case, the banking system in Pakistan is the first generation stage hence we did not indulged in that kind of ventures.
Hence the banking system in Pakistan banks was lucky to have minimum integration with the international financial regime.
In fact, Pakistan having a huge population of around 160 million plus offers great opportunities within the local market. The best example for such kind of financing is Mexico where over 50 percent of industrial output is meant for the US market, since the American market is sinking consequently the Mexican industries facing the brunt of the US economic recession. Where Mexico would go to sell its products now? is a relevant question. Why Japan, South Korea, Thailand, Brazil etc are under heavy pressure because they not finding outlets for their products. Since they are export based economies now facing difficulties to sell their industrial out put naturally due to extremely low demand in the US and the European markets.
Contrary to that we can set up industries focusing more at the local market demand as far as Foreign Direct Investment (FDI) we were not entirely depending on FDIs. Though Pakistan received FDI during last three four years but its share was not so overwhelming which could have a crippling effect on our system.
The NBP Chief was optimistic about the economic future of Pakistan and said in fact it was not as bright as it is today! To substantiate his views regarding bright future of Pakistan, he pointed out the areas like huge domestic market of 170 million populations which could lend a strong hand. In fact, Pakistan cannot depend on exports alone in the present global scenario. Look at our textile sector, a large number of textile units facing problems because the declining demands in the European or US market. In fact, those economies excessively depending on exports or those which had attracted huge foreign investment such as Dubai are in problem as both the models i.e. exports based or foreign investment have proved a failure.
So we have come to the conclusion that we can and we should depend on our local market. You know there are only 12 countries in the world which have strength of 100 million plus population, Pakistan being one of these countries stands at number 6. In this backdrop we have an indigenous market which has the potential to attract huge investment especially for building up our infrastructure. Based on huge population we are in need of construction of infrastructural projects while our returns are usually attractive.
Another plus point is the ideal location of Pakistan because we are located in the middle of two great economies which are the pools of the capital one is Middle East and the other is China. He predicted that in the next five to ten years there is a great scope for setting up trade and industrial zones in this part of the world. The agriculture is another strong point for Pakistan economy. The only question is to optimize the potential of this potential area which not only can make Pakistan a self sufficient country but also cater to the export market because it food is the only market which would always be available being basic human need. That was one of the reasons that we did not receive the dent of the world financial disaster being at the low end as compared to those having Hi-Tech export markets.
When asked to share his views regarding revival of the capital market in Pakistan, Ali Raza said that the regulators are in the process of taking corrective measures to put back the market on the track. One of such steps is the exciting decision of allowing the listed companies to buy back their shares. For example, at present the NBP scrip was at Rs250 at the time when the index was operating at 15700 points level and droped to Rs175 at the index level 1200 and now it has come down to the level of Rs55-60 but interestingly the yield was dropped and those holding the shares enjoying high yield level. After the approval of buy back provision National Bank as well as other listed companies would certainly buy back the available shares. This step would certainly give a boost of the market and restore the confidence of the investors.
Top Stories | Pakistan Observer Newspaper online edition
