Thursday, March 08, 2007

Is ABN's entrance into a lucrative Pakistan a blessing?


ABN Amro purchased a 93.4 percent stake in Pakistan's Prime Commercial Bank, for 13.8 billion rupees ($227 million). Investors are drawn by increasing demand for credit in South Asia's second-largest economy. Its government anticipates a 7 percent growth in the year ending June 30 2007, from 6.6 percent in 2006. Out of its 20 million bank accounts, Pakistan consumer's loans account for just 4 percent of the $129 billion economy in a nation of 160 million.

"The buyout means foreign investors have keen interest in the banking sector after growth in Pakistan's economy, boosted earnings," said Mohammad Imran Khan, head of research at First Capital Equities. Prime's shares have gained 9.3 percent this year. Bank loans to companies amounted to 402 billion rupees in the year ended June 30, exceeding the central bank's target of 330 billion rupees. Jeroen Drost, chief executive officer of ABN Amro Asia said "Pakistan has one of the world's fastest-growing financial markets and is a key growth market for ABN Amro Asia.This transaction presents tremendous opportunities to accelerate our activities in the Pakistan markets."

ABN Amro's purchase will make it the second-biggest overseas bank in Pakistan by branches, exceeding 80 branches and assets of 124 million rupees. Saeed Chaudhry, chief executive officer of Prime Bank said that the merger with a global bank like ABN Amro will further enhance and quicken the growth of the combined entity. London-based Standard Chartered , the biggest overseas bank in Pakistan, with 111 branches, bought a 95.37 percent stake in Union Bank for $487 million to create Pakistan's sixth-largest bank by assets.

In 2003, Pakistan sold a 51 percent stake in Habib Bank, the nation's second-biggest, to the Geneva-based Aga Khan Fund for Economic Development for $390 million. Singapore's Temasek Holdings and NIB Bank reached an agreement with shareholders of Pakistan Industrial Credit and Investment Corp, known as PICIC, to acquire a stake in the finance group, the lender said. Shamshad Akhtar, the central bank governor, said Pakistan's banking coverage is poor "in some areas". "It needs to be deepened to underserved segments of the population and business," she said. More mergers and acquisitions are needed and should not come at the cost of competition. According to Moody's Investors Service, Pakistan's banking industry has a stable outlook, citing robust credit growth.

Will ABN's merger with Prime Bank spark a trend and cause a scurry of foreign investors to snatch a piece of one of Asia's most promising economies? It could go either way. What are your thoughts on this?