'ICBC is positive on Pakistan's economic future,' CEO, ICBC Pakistan Operations

Mr He Shenghu has been associated with Industrial & Commercial Bank of China Limited(ICBC)Pakistan Operations since its establishment in 2011. He joined as founding member and served as Deputy CEO from May 2011 to March 2015. Later in April 2015, he was appointed as CEO of ICBC Pakistan Operations. His leadership role has been instrumental throughout in branding ICBC as one of the key foreign commercial banks in Pakistan in such short period of time.

Mr He Shenghu possesses nearly three (3) decades of banking experience since 1988 when he joined ICBC Group. His interest in the field of the economy and finance further enriched since he joined ICBC Pakistan and kept very close eye on Pakistan's economy trends. Mr He has also served as Academic Advisor in the University of Illinois, USA. BR Research sat down with Shenghu and discussed matters related to ICBC, China and Pakistan cooperation and the bank's role in CPEC related development. Below are the edited excerpts of the conversation.

<B>BR Research: What is ICBC's scope and mandate in Pakistan?</B>

<B>He Shenghu:</B> As the largest commercial bank in China, ICBC has set it as her primary strategy in Pakistan to facilitate and boost the trade and economic cooperation between China and Pakistan. As we all know, China and Pakistan enjoy a long history of friendship and particularly in recent years, this traditional friendly ties has been further extended through the ever increasing data of trade and business activities between the two countries.

ICBC is the only Chinese commercial bank operating in Pakistan and we take it as our responsibility and advantage to play a significant role in the trade and financial cooperation between the two countries. It has been five years since ICBC entered the Pakistani market, offering financial services with high quality to over 100 local and Chinese enterprises. Our business scope includes local and foreign currency deposit and settlement, trade finance, project finance, foreign exchange and investment advisory, etc.

It is necessary to emphasise that in 2015, ICBC was approved by State Bank of Pakistan to start local RMB clearing mechanism, which means ICBC Karachi Branch is now the only local bank that can offer RMB clearing and settlement service to both companies and financial institutions in Pakistan. This will not only provide an alternative settlement currency to the customers, but also help to place a solid foundation for Pakistan to expand its foreign trade and reserve.

<B>BRR: Does the bank work like any other commercial local bank?</B>

<B.HS:</B> ICBC Karachi Branch has been granted full banking license by SBP and there is no difference between ICBC and any other local commercial banks in terms of business scope.

Apart from that, ICBC is known as the largest commercial bank in the world in terms of market capital and boasts extensive product lines and advanced experience in business management and corporate governance. Therefore, ICBC can offer much more services in business products and advisory to our customer than other local banks. Firstly, as one of the largest global banks, ICBC has now established an institutional net work covering 42 countries and regions and undoubtedly can bring more business opportunities through its extensive global customer base.

Secondly, ICBC has a solid customer base in domestic China and is willing to share the information with clients in Pakistan and at the same time, introduce more interested investors from China and other countries to Pakistan. Thirdly, with its enormous scale of assets, ICBC has plenty of liquidity and great capacity of global resource allocation. Thus we can offer our clients in Pakistan better alternative in credit and liquidity with comparatively low cost. What is more, ICBC is also the largest RMB asset manager in the world and with its robust RMB global clearing system, the bank can effectively promote and facilitate the use of RMB in Pakistan.

<B>BRR: The asset mix has been hugely tilted towards investments in government securities. Why is that so? Is there not enough demand for genuine credit?</B>

<B>HS:</B> As you know, with the economic structural change and the lagging industrial development in Pakistan in the past, local credit demand and quality has been wandering at relatively low level in past years although we are now seeing the great potential of Pakistan economy is to be released through the trade and economic cooperation between China and Pakistan.

Take some local banks for example, the loan assets of banks such as HBL and NBP take up no more than 40 percent of their total assets and ICBC is not the only one among their local peers. However, from ICBC's perspective, there is plenty space for development in the major economic sectors of Pakistan, particularly in infrastructure, energy, telecom, real estate and food processing. We believe that with the recovery of the macro-economy in Pakistan, especially the resolution of energy and gas shortage in the years to come, the credit market in Pakistan will surely undergo a phase of fast development.

ICBC, as one of the major players among the local commercial banks, is more than willing to participate actively in the local credit market and expects a significant growth of percentage of high quality asset on our book in the near future.

<B>BRR: The bank has high borrowing on the books. How soon can we expect deposits to overtake borrowings?</B>

<B>HS:</B> During the early stage of development, ICBC Karachi has been relying more on borrowing for funding especially from ICBC Head Office and inter-group. This is a normal path for any foreign bank that starts business in a new country or region. In recent years, if you look at our balance sheet, it is obvious that the deposit scale is showing a very fast up growing trend.

By the end of April, 2016, the bank's deposit is about $600 million, surpassing the figure ($530 million) of Citi Bank in September, 2015. As you can see, ICBC has taken the leading position in terms of deposit volume among the comparable peers. With the greater development of trade and economic corporations between China and Pakistan, we may foresee a further increase in deposit in the future sourcing from the fund of local customers and the investment capital of Chinese enterprises.
More and more projects related to the vision of "China-Pakistan Economic Corridor" are now bringing significant economic benefits to both local and Chinese enterprises. For ICBC, we are confident to expand our deposit base along with such cooperation between the two countries.

<B>BRR: How important will CPEC be for ICBC?</B>

<B>HS:</B> CPEC is the landmark of trade and economic cooperation between China and Pakistan. We cannot praise more of its significance to the governments and commercial sectors of both countries. As the only Chinese commercial bank that has set up branches in Pakistan, ICBC of course plays an indispensable role in the development of CPEC. Firstly, CPEC brings mega infrastructure and energy projects to Pakistan and ICBC, with its global financial capacity, is undoubtedly the natural partner for the finance of these big projects.

Secondly, along with CPEC, more and more Chinese enterprises are coming to Pakistan and seeking for business opportunities. ICBC, as the local Chinese commercial bank, will serve as an important channel for such clients to understand better the environment of investment in Pakistan. In addition, CPEC also sets a sound foundation for the usage of cross-border RMB settlement and ICBC is an incomparable expert in providing quality services to our customers in this area.

As a matter of fact, ICBC is already playing an indispensable role in CPEC, being one of the major finance providers to the major projects. During Chinese President Xi's visit to Pakistan last year, ICBC signed four contracts worth $4.5 billion. So far, the international syndications led by ICBC for projects such as Thar Coal mine and Power station, Dawood Wind Power and Sachal Wind Power have reached financial closure and started drawing down. Other projects such as SK Hydropower Station and Sahiwal Coal Power Station are also soon to reach financial closure. In the mean time, ICBC are also acting as agent bank and custodian bank for many projects of CPEC, ensuring the safety and convenience of the fund management.

<B>BRR: What is your view on Pakistan's economy?</B>

<B>HS:</B> Pakistan is one of the major developing economies with great geographical advantages and her importance as an economy in South Asia cannot be exaggerated. It is of great significance to maintain fast and sustainable economic development of Pakistan for the overall regional economy. ICBC holds a firm and positive view on the future development of Pakistan economy.

A country with the sixth largest population in the world, Pakistan shows huge potential for economic development and is drawing greater attention from international investors. As we shall see, with CPEC going further, Pakistan will benefit a great deal from future investment and infrastructure construction. It is based on such a positive view that ICBC has adopted a long term strategy for the business in Pakistan. ICBC Lahore Branch, the third ICBC branch in Pakistan, was formally inaugurated with the witness of Chinese President Xi Jinping and Pakistani prime minister Mr Muhammad Nawaz Sharif in April 2015, as a high praise of ICBC's presence in Pakistan as well as an indicator of the level of friendly commitment between the two nations. The set-up of Lahore Branch also proves ICBC's long term view and commitment to the local market.

<B>BRR: Will your bank have a role to play with the CPEC investment coming in?</B>

<B>HS:</B> As I have mentioned above, as the largest commercial bank in China, ICBC will primarily focus on facilitating and boosting the trade and economic cooperation between China and Pakistan. It is not just our commitment but also our business foundation to give support to the smooth development of CPEC related projects. With the fast development of local economy, ICBC will be more confident in business operation in Pakistan. For the mutual benefits of China and Pakistan, ICBC will continue to bring her global advantages to Pakistan, give funding and advisory support to local and Chinese enterprises, and make memorable contributions to CPEC.