The investment banks should focus on developing competitive advantages in the form of wider outreach and ability to mobilise national savings with greater efficiency. This strategy not only promises lucrative growth of the industry but will also add the much-needed value to the society.
This was stated by the Managing Director of Banking Services Corporation, State Bank of Pakistan, while addressing the 'Business Solutions Conference on Building Trust in Investment Banks', organised by PAF-KIET on Saturday.
He said that for the couple of years the industry has been shrinking, and the current scenario reflecting a declining trend calls for concerted efforts by regulators as well as the industry itself to overcome the situation.
He said that at present the sector is undergoing a transformation process. Under the regulatory purview of the Securities and Exchange Commission of Pakistan (SECP), investment banks are classified as non-banking finance companies (NBFC) and are regulated by 'NBFC Establishment and Regulation Rules of 2003 which provide an enhanced framework of operations for investment banks and have considerably widened the scope of business. Accordingly, they have started to focus their attention on becoming multi-business entities, instead of retaining their specialised business status, so as to remain commercially viable.
Durrani said that over the last few years, the sector had witnessed considerable consolidation. The number of banks reduced to nine from 16 in 2002. Total assets of these banks stood at Rs 32.7 billion in 2004 as compared to Rs 34.4 billion in 2003, and Rs 41.5 billion in 2000. Similarly, their total investment declined to Rs 16.4 billion in 2004 from Rs 22.1 billion in preceding year. However, total investment in 2004 increased it 2000 level.
The SBP official said that investment banks in Pakistan generally had limited success due to various reasons, primarily due to the weaknesses but they are not altogether devoid of opportunities. The corporate sector has perennial needs for services such as investment advisory, corporate restructuring, distressed assets acquisition, disposal, merger and acquisitions equity and debt financing.
With the maturing up of economy and financial markets the need for these services will further intensify, holding good prospects for the investment banks proficient in these areas. Commercial banks will not be able to compete with them on these fronts as they lack specialised expertise in these areas.
Earlier, addressing the seminar on the role of investment banks in promotion of affordable housing, House Building Finance Corporation (HBFC) Chairman Zaigham Mahmood Rizvi said that the number of housing units in the country is 19 million in urban areas while the rate of housing demand in urban areas is 8 percent per annum. Of the total housing units in urban areas, 15.5 million (80.8 percent) are on ownership basis, 2 million (10.2 percent) are rent-free and 1.5 million (9 percent) are rented.
He said that 25 million housing units are required for a population of 149 million, giving a shortfall of 6 million units in the country.
PAF-KIET Chancellor Dr Izhar-ul-Hasan welcomed the guests and explained the objectives of the conference.
Those who presented papers on specialised subjects in the conference were Dr Javed Ansari, Dr Rafique Khan, Dr M. Nishat, Iqbal Ismail, Faisal Abdulla, Fareed Alam, Maleeha Fatima and Aejaz Danishmand.
The final session of the conference was chaired by Zafar Aziz Osmani.