RBS up for sale in Pakistan

By By Saad Hasan

KARACHI: As the Royal Bank of Scotland (RBS) on Thursday announced the worst financial loss in British history its office here disclosed the operations in Pakistan are being sold.

In a statement released to the Karachi Stock Exchange (KSE), the bank said there are potential buyers who have expressed interest in its business, which includes the retail and commercial banking segments.

“Current capital constraints on the RBS Group and the need for RBS to reduce the size of its balance sheet means it is unable to provide the investment the business in Pakistan requires to achieve its growth potential,” it said.

The bank neither divulged any details pertaining to potential buyers nor did it say anything about the fate of its employees here.

The RBS exit comes at a time when it was in the process of reorganising the business of ABN AMRO, which it bought at peak of the global financial crisis in 2007.

There were doubts when it started re-branding the 80 branches of ABN AMRO in Pakistan amid deteriorating economic and political situation, industry people say.

“It is only logical for RBS to give up operations in Pakistan,” said an official of another multinational bank. “They came because this country was part of the deal. RBS decision is caused by global reasons but the situation here will make head office of any multinational bank sceptical.”

Economic decline will further pull down profit growth of the banking industry this year and next, as people borrow and deposit less in banks, a banking analyst said.

“Banks are parking their funds in treasury bills as they fear rise in non-performing loans and cut back on lending,” said Farhan Rizvi, an analyst with JS Research. “Industry is in a consolidation phase and there will be mergers and takeovers this year.”

But, he said, it is unlikely that a new foreign bank will come forward to buy RBS in Pakistan at a time when there is financial turmoil in international markets.

And, he said any consortium formed locally to take over RBS would have to be very strong financially. “We are talking about 80-plus branches and over Rs112 billion in assets.”

The chances of RBS being purchased by any foreign bank, which is already operating in Pakistan, are also slim, said A B. Shahid, a banker and commentator.

“With the prevailing political instability and security concerns, it is very unlikely,” he said. “It is unfortunate the turmoil continues and our politicians aren’t able to see the severity of the situation.”

While their role as financial intermediaries is limited, industry people say, foreign banks have brought modern banking practices and products to Pakistan.

Pakistan Can Export Ample Milk To Malaysia

KUALA LUMPUR, Feb 25 (Bernama)-- Pakistan, one of the world's largest milk producers, will be able to meet Malaysia's need for milk as it produces more than 34 million tonnes annually, the Pakistan High Commission's commerce counsellor, Majid Qureshi, said today.

The imported milk could either be fresh or in powdered form, he told Bernama on the sidelines of the Business Leaders Meetings in conjunction with the D8 Ministers' Meeting on Food Security conference here today.

Currently, Malaysia imports about eight million tonnes of milk and milk powder annually from other countries, particularly New Zealand and Australia.

Qureshi said Malaysian companies with technical expertise and funds could invest in Pakistan to further develop the sector.

He also said that Pakistan would be able to provide ample Halal meat to Malaysia.

Pakistan, he said, had a huge land bank and cattle heads and manpower to meet the potential needs of Malaysian investors and entreprenuers.

As of last year, Pakistan had 144 million head of cattle, sheep, goats, baffaloes and camels.

He suggested that Malaysians interested in running animal husbandry farms so in Pakistan as the government was very supportive of such ventures.

It provided several incentives such as tax breaks, one-stop approval centre and fast approval and guaranteed protection of investment by an act of parliament, he said.

Business community of Great Britain urged to invest in Pakistan

The UK business community has been urged to invest in various promising projects in Pakistan offering high margin profitability and returns.

Speaking at a dinner hosted by UK-Pakistan Chamber of Commerce and Industry in Southall, west London, on Friday, Pakistan High Commissioner to Britain Wajid Shamsul Hasan said the south Asian country is ideally located for export-oriented industries and businesses.

Some of the projects he identified with potential growth and high returns include alternative energy, housing sector, roads building, surgical and sports goods, food processing, gems and jewellery.

The High Commissioner said Pakistan has in place well-established infrastructure and legal systems which are important to attract investment. This include rail and sea links, good quality telecommunications and IT services, modern company laws and long standing corporate culture.

Pointing out that Pakistan currently is an energy deficient country, he said the UK-based Pakistan business community has golden opportunity to either go for joint ventures with their Pakistan-based companies or can wholly establish projects in alternative energy sector such as wind farming, solar and hydro fields.

“You can also participate in housing industry as the Government is keen to provide the people with the low-cost houses whose construction also benefit related vending industry,” he said.

Hasan said poverty can be addressed by generating jobs opportunities through industrialisation and added that for the export-oriented industries and businesses, the Government has established a number of Export Processing Zones in the country with special incentives.

He praised officials of UKPCCI for taking keen interest in the progress and development of their motherland and in enhancing the trade ties between Pakistan and the UK.

The outgoing UKPCCI President Sami ullah spoke of his visit to Expo 2008 in Karachi and said the event provided good opportunity for the UK business delegation to explore business opportunities in Pakistan.

He said apart from potential opportunities in alternative energy sources, food is another area where business prospects are good in term of investing in new technology to boost wheat and other major crop production.

Sami ullah said Pakistan needs to re-group or re-organise to achieve the previous position when the country was exporting wheat but is now importing the commodity.

“Textile sector, food business, carpets, electronics, rice, surgical instruments and hospital supplies, herbal medicines, gems and stones are areas where I would urge all our members to take interest to find potential partners or invest on their own.”

He spoke of his meeting in Lahore with UK Trade and Development Office representative, running overseas market introduction service which undertake market analysis, feasibility reports on products and services and offer services related to market entry strategies.

Sami ullah praised the co-operation of Commercial Secretary Saira Najeeb and Commercial Counsel in Manchester Hamid Ali for their sound advice and building business links with the two countries.

In response to questions from the members of UKPCCI, the High Commissioner said the peace deal in Swat will lead to positive impact in the general situation in the country.

He said the spirit of consensus seen in the course of the Senate elections among the various parties is a good omen which will lead to further consolidation of democracy in the country.

Referring to the objections on high interest rate, the High Commissioner said their concerns will be passed on to the relevant authorities in Pakistan.

He further said the Government is seized of the matter regarding land mafia and has initiated steps to protect investments in property by the overseas Pakistanis.

UKPCCI Director and member, Punjab Assembly, Dr.Ashraf Chohan, informed the guests that he is introducing a private member bill for establishing special courts and a police force to deal with the curse of land mafia in the province.

Director Muzaffar Chaudhry and Secretary Naheed Randhawa spoke on the occasion.

Over 217 pc more sales tax recovered on petroleum products

KARACHI: Over 217 percent more sales taxes on petroleum products during the current fiscal year July-September were recovered as compared to the same period previous year.

Federal Board of Revenue (FBR) released first quarterly report said that over 203 percent more sales taxes were recovered in July 2008 as compared to July, 2007, while in August 199 percent and in September over 246 percent more sales taxes were recovered.

During the period under review, 167 percent more revenues were recovered on account of sales tax on the use of electricity as against 24 percent in sales tax recovery on gas.

According to the data available, sales recovery on cigarettes remained up by 31 percent, telecommunication by 4.5 percent, cement by 3.3 percent, tin canned items over 63 percent, while sales tax on steel products dropped by 64 percent.

PSO among the top 100 companies of the Muslim World for 2008

Pakistan State Oil (PSO) ranked 29th among the list of top 100 companies of the Muslim World released here.

US Consultancy, Dinar Standard in their 5th Annual Ranking released the list of 100 top companies of 57 member countries of the Organization of Islamic Conference (OIC), which depicted Turkey�s 23 companies among the list bagging most, while the largest oil company of the world Aramco topped the list.

PSO ranked 29th whose revenue as compared previous year was seen surged by 41 percent. Previous year PSO was ranked at 31st and Sui Northern Gas at 99th.

Housing loans witness visible reduction

KARACHI: The issuance of housing loans has witnessed a marked reduction due to high interest rates coupled with steep construction cost, a State Bank report said.

According to a State Bank’s report on Development Financing, the total volume of house financing registered a nominal rise of two percent to Rs73.60 billions till September 2008.

Interest rates soared due to tight monitory policy, leading to reduction in obtainment of housing loans by private sector.

Tareen for checking price hike to control inflation

ISLAMABAD: Advisor to PM on Finance, Shaukat Tareen has pinned the inflation control with the price spiral. “There is a need to control price hike through administrative measures at grass root level in order to control inflation through out the country”.
Talking to newsmen in “Good Morning Pakistan” Programme, Tareen said that the government and tax department is framing various policies to enhance the tax ratio of the country to 16 percent in the upcoming years.
He said tax-base policy coupled with introduction of taxation in agriculture, real estate and services sector would help the government to multiply revenue generation of the country. It has been decided to reform the agriculture sector in order to bring it into the tax net by the next two years, whereas small businesses particularly wholesales and retailers should also contribute their part.
He expressed satisfaction over the steady growth of the country’s economy during the past few months and praised the economic team for their attempt and well thought-out policies in stabilizing the country’s overall economic situation and controlling inflation.
He said that short and long-term measures would steer the country out of the current economic challenges and ensure speed development of human resources, health, education, energy and banking sectors. He said that there is demand to make institutions more powerful and give them confidence to safeguard their interests.
The economic measures which would be taken in the next six months, he hoped would further reduce inflation and attract more foreign investment in the country.
The adviser said the government is taking all measures to control inflation and bring the interest rates down to a single digit.
Regarding to a question about Benazir Income Support Programme he said that the government is formulating long-term policies to eradicate poverty from the country and in the next phase, families will get financial assistance.
Besides the income support, the members of deserving families would also be provided technical training, education and health facilities, and it would be expanded he added.

Macroeconomic Conditions signal turbulence

By A.B. Shahid

THE recent monetary policy announcement by the new State Bank governor sends a clear message: that there is little in terms of improvement in the state of the economy to warrant the much demanded monetary loosening.


Based on traditional logic, the stance is correct; while fiscal, trade and current account deficits are already high there may be further slippages. First, with Federal Board of Revenue (FBR) collecting only Rs544 billion in first half of FY09, the full-year Rs1.36 trillion tax revenue target may not be met. Impliedly, public borrowing could stay high squeesing credit to the private sector, which won’t help contain the economic downswing.

Second, anticipated decline in trade deficit (courtesy falling imports) may be less than expected since: (i) export growth may decelerate due to global recession and infrastructure bottlenecks causing intermittent power and gas supply shortages; (ii) anticipated decline in oil import bill may turn out to be less than its projection.

Besides, deceleration in Consumer Price Index since September 2008 was moderate relative to Sensitive and Wholesale Price Indices, while Core Inflation Index (the peg for interest rates) remains what the governor called ‘stubborn’. According to him, ‘this signifies that demand pressures have not completely dissipated despite a slow down in economic activity.’

For once, SBP explicitly accepted that accumulation of excess demand since 2004 prepared the slope for inflation to slip uncontrollably, and in 2008 it caused multiple deficits, raised production costs all round, and blunted growth. To limit its fallout, SBP considered it expedient to continue its tight policy stance and to keep its discount rate unchanged at 15 per cent.

The policy highlighted the vulnerabilities (principally high imports) nourished by a stable rupee, that eventually caused sudden widening of the current account deficit after global financial turmoil and Pakistan’s political turbulence triggered a fall in reserves, quick depreciation of rupee, and rapid rise in inflation because exchange rate adjustments weren’t based on inflation differentials and trade deficit.

Beginning 2004, demand for goods steadily overshot supply due to excessive private sector borrowing fuelled by low interest rates. In 2007, government borrowing rose rapidly owing to delayed pass through of fuel subsidies amounting to Rs395 billion out of the fiscal deficit of Rs777 billion, which was sheer bad fiscal management.

Excess credit expansion was reflected in banks’ high loan-deposit ratios; later it led to an unprecedented market ill-liquidity; between July 1 and January 10, deposits shrank by Rs128 billion (3.4 per cent), while bank credit soared by Rs 500 billion (11 per cent) placing a combined strain of Rs628 billion on the system and shrinking its liquidity by 14 per cent, forcing SBP to continue its tight monetary stance.

Denying a relationship between discount rate and lending rates, SBP views the liquidity gap as the counterpart of the Current Account deficit, and believes that such a large drop in liquidity would have raised interest rates regardless of the SBP discount rate level. Indeed, 6-month Kibor eased by 55 bps to 15.21 per cent from 15.76 per cent in November 2008, and 3-month Kibor by 98 basis points.

This is where truth begins to surface i.e. over-simplification of the logic about interest rate rise since SBP also regrets the dismal performance of the large scale manufacturing sector that, for the first time since 2004, fell by 5.6 per cent, as well as falling private sector credit, all during the first five months of current fiscal year that together portray definite weakening of the economy.

Drop in private sector credit doesn’t reflect industry’s reduced funding needs but the fact that interest rates are too high to make an economic activity viable while domestic and foreign markets reflect falling demand as disposable incomes slide. SBP admits these realities as well as the impact of ‘power cuts and long interruptions’ but not that of high interest rates in slowing the economy.

The fallout from economic slow down will be accentuated by relying on macroeconomic indicators with a history of (often wilful) miscalculation. Yet, SBP didn’t realise that while the industry confronts cost escalation due to a host of factors (none resolvable quickly) lower borrowing cost could be the immediate relief; without it more businesses could close and worsen banks’ perception of lending risk.

SBP notes banks’ overzealous participation in T-Bill auctions as well as the fact that banks’ T-Bill stocks ‘over and above the SLR indicate their [banks’] reluctance to extend credit to the private sector’, as also the fact that it is ‘an indication of growing risk aversion’. It also overlooks the fact that Kibor is falling not because banks are lending cheap; they prefer low-yield zero-risk business i.e. investing in T-Bills

According to SBP bulk of the surplus liquidity (that rose from Rs79 billion in end-September 2008 to its current level of Rs325 billion) has gone into T-Bills and ‘has not only pulled down the Kibor rates (i.e. Karachi Inter-bank Offer Rates) but has also reduced the inter-bank spreads between the repo and the call rates’. The term to note here is ‘inter-bank’.

Will the shifting of bulk of the national savings from the private sector to the exchequer yield the desired results in economic growth? A yes to this question implies overconfidence in the bureaucracy’s ability to generate optimum value from wealth placed at its disposal – a phenomenon not witnessed since the late 1960s; it is even less likely now.

SBP offer to provide another Rs25 billion for concessional export re-finance is generous but SBP again failed to note that Part-II (pre-shipment finance) of this scheme is often misused. An imaginative step would have been to offer this amount only for Part-I (post-shipment finance) that rewards real exporters not those investing the pre-shipment finance in speculative ventures.

Finally, the policy seems geared to facilitate government borrowing. While initially SBP announced that it will continue to manage the operational aspect of the auctions without any change in the process as far as the market was concerned, it was subsequently announced that, henceforth, the government will decide the rates of return to be offered on T-Bills and PIBs.

This again reposes excessive confidence in bureaucrats’ ability to respond correctly to the scenario characterised by the inter-relationships between existing stock, demand, and supply of money, and private sector credit needs. What is positive (though more of a hope) is the plan for ‘segregation of debt and monetary management’ and ‘introducing limits on direct government borrowings from the SBP’.

But the promises about prior announcement of the auction calendar for T-bills and PIBs, a volume-based approach to determining the auction result, and quarterly (instead of half-yearly) policy statements, may yield the desired results. (Dawn)

KSE takes back show cause notices against 5 Companis

Karachi Stock Exchange (KSE) has taken back the show cause notices against five companies out of the total of 70 companies under notice.

KSE released notification said that the notices withdrawn against the companies included Tri Star, Mutual Fund, Tri star Muzarba, Prudential and Discount and Guarantee House, Koh-e-Noor Spinning and Chanab Limited. The notification said that these companies have been deleted from the default counter list.

KSE officials said that they have submitted the statements, which earlier in violation of companies’ section they had failed, and now the notices stand withdrawn.

New FPCCI president to take charge today

KARACHI: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) officially announced its election results on Friday and the new office-bearers would take charge of their respective positions in an official ceremony to be held on Saturday. Sultan Chawla was elected unopposed as President of the FPCCI.

The four vice presidents elected on the basis of associations are Zakaria Usman, Mansha Churra, Aftab Birlas and Hameed Chadda. Of the four vice presidents who were to be elected from each of the four provinces, only two have been elected unopposed so far, who are Mumtaz Sheikh from Sindh and Mohammad Idrees from Punjab.

Vice Presidents from the provinces of Balochistan and NWFP would be elected when the fake associations’ case pending in Sindh High Court is solved and that may not be before the 5th of February, an FPCCI official said.