In May, FinanceAsia named the winners of its annual Country Awards for Achievement. Last month, winners were given ther awards at our annual awards dinner in Hong Kong. Today, we continue presenting the rationale for our decisions with a look at Pakistan, a country on the front line of China's Belt and Road Initiative.
Best Bank: National Bank of Pakistan
National Bank of Pakistan (NBP) defied a nationwide slowdown in banking profits in 2016 by pulling off double-digit revenue and net income growth – and posting its biggest-ever profit after tax.
While Pakistan’s biggest and most prominent banks either suffered falling profits last year or struggled to make major gains, NBP stood out as the only bank able to post a double-digit increase, according to data from CapitalIQ, a data service run by S&P Global Ratings.
The bank managed a 14.95% increase in net income during 2016, driven in part by falling provisions amid a drop in non-performing loans. This compares with a 2.96% fall in net earnings at Habib Bank Limited and a 11.43% drop at MCB Bank, despite the fact NBP operates with smaller profit margins than either firm.
NBP was set up in 1949, two years after Pakistan’s formation as a country, and was initially seen as extending the reach of the country’s central bank. But it has since evolved into a competitive, international commercial bank.
Besides its record profit, NBP could boast several impressive achievements during our awards period. It worked on a PRs100 billion ($944 million) sukuk loan for the Neelum Jheelum hydropower project, which it claims was the biggest public sector financing ever. It opened 45 new branches and bolstered its trade finance team at a time when growing cooperation with China is adding major trade opportunities for Pakistani companies.
NBP also made a big push into Islamic banking in 2016. The bank grew its Islamic branch network to 118. That took its sharia-compliant assets to PRs36 billion last year, a whopping 260% year-on-year rise.
It wasn’t all good news for NBP, though. A long-running dispute with former employees about its pension obligations was extended after Lahore’s High Court threw out its petition. The case now drags on with the Supreme Court and although the court previously backed State Bank of Pakistan in a similar case, the worst-case scenario would be an estimated PRs47.7 billion in pension liabilities.
That was certainly unwelcome news, but it was also the sole blot on an otherwise spectacular year. NBP defied an environment that led to slowdowns at many of its local rivals, and continued to position itself to make the most of Pakistan’s key role in China’s Belt and Road Initiative.
Best Investment Bank, Best Broker: Elixir Securities
Elixir Securities has a long pedigree in Pakistan’s equities markets, but it is still a plucky young upstart compared to the biggest banks in the country.
The firm was created when W.I. Carr, the old Asian equities arm of Credit Agricole, became the country’s first foreign securities broker in 1994. After W.I. Carr shuttered, the firm was renamed Elixir Securities and bought by a conglomerate. In 2015, the local partners took control of the firm.
Two years ago Elixir Securities did not have a major investment banking franchise. Equity brokerage was – and still is – in its blood, but the firm had some catching up to do. Since then, Fawaz Valiaani, the firm’s chief executive, has put together a team with a mix of experience at foreign and local banks alike. Elixir now has 10 people working in its investment banking team, part of around 90 people working at Elixir overall.
The firm has impressed most by positioning itself as the go-to firm for transactions between Pakistan and China. The growing relationship between the two countries, underscored by the China-Pakistan Economic Corridor, has thrown up several deals – and among Pakistani firms, only Elixir has been invited to the table.
The firm was adviser to Pak China Investment, a joint venture between China Development Bank and the Pakistan government, when the firm bought a stake in Pakistan’s sole securities depository. But its most eye-catching deal success was as adviser to a consortium comprising the Shanghai Stock Exchange, Shenzhen Stock Exchange, China Financial Futures Exchange, Pak-China Investment Company, and Habib Bank when it bought a 40% stake in the Pakistan Stock Exchange (PSX) for $85 million.
The size of the deal is barely enough to deserve a mention but its significance – and the work that went into it – belies the deal value. It was only in January 2016 that Pakistan finally merged its three separate exchanges. By December, Elixir had helped close a winning bid for the largely foreign consortium.
Elixir is not entirely focused on cross-border deals. Indeed, the firm has won mandates from local rivals. Between 2014 and 2015, when Pakistan’s government divested part of its stake in domestic lenders UBL and Habib Bank, Elixir was picked as a bookrunner on both deals.
But it is because of Elixir’s increased focus on bringing more foreign investors and companies to Pakistan that the firm really stands out. It has positioned itself to make the most of Pakistan’s increased attractiveness to global firms and the move has already paid off.
Elixir has hired rapidly in both broking and investment banking. From 71 in May 2015, its staff now numbers 90.
The firm wants to position itself as a one-stop shop for both sell-side and buy-side clients.
Judging by its impressive 2016, it has already done so.
Best International Bank: Standard Chartered
Standard Chartered is far and away the biggest foreign bank operating in Pakistan. Since first entering the country in 1863, it has slowly but surely built a juggernaut. The bank now employs around 4,500 people and boasts 99 branches.
Standard Chartered has no doubt been helped by falling competition from global rivals. Deutsche Bank has a presence in the country, employing around 70 people, but other big names have trimmed their exposure. Barclays and HSBC both sold their local businesses in 2015. By that point, Citi had already slashed its branch network in Pakistan.
Standard Chartered, in contrast, has invested deeply in the country. As a result, Pakistan has helped drive profits for the entire bank. In 2015, its retail bank in the country was the second-most profitable for Standard Chartered in Africa and the Middle East.
The bank is working hard to innovate in the country. Last year, it refurbished its Allam Iqbal and North Nazimabad branches to introduce more digital technology. In 2017, it did the same in Gulberg. The bank has also introduced a fully digital branch in the Dolmen mall in Karachi, specifically targeting high-end clients.
Standard Chartered claims to provide banking services for 40% of the companies listed on the Karachi Stock Exchange, an extraordinary achievement for a bank that operates only around 1% of branches in the country. But this should come as little surprise.
Standard Chartered can offer those companies world-class corporate finance. It can also offer executives in the country an increasingly diverse suite of wealth management products.
Local corporations could be forgiven Standard Chartered faced more competition in the country, if only because it would strengthen their hand in fee discussions. But Standard Chartered’s Pakistan team can rightly claim that, for now at least, they are the undisputed No. 1.
Best Investment Bank: Credit Suisse
The best investment banks are able to help their clients navigate a variety of different markets, whether that means selling equity, seeking out potential acquisition candidates, or turning to bond investors and bank lenders to raise debt. In Pakistan, Credit Suisse ticked each of those boxes during the review period.
The highlight of the bank’s year was almost certainly its role as a sell-side adviser on the landmark acquisition of K-Electric, Karachi’s monopoly-holding utility, by Shanghai Electric.
Credit Suisse bankers worked hard to muscle in on the deal after Citi won the mandate, pitching a variety of Chinese buyers before being given any official slot on the transaction.
That clearly impressed Abraaj Capital, the Dubai-based seller of the asset. The firm mandated Credit Suisse alongside Citi, and together the two banks helped put together a transaction that was recognised by FinanceAsia as the most impressive deal in Pakistan last year.
The K-Electric deal alone would have given Credit Suisse an impressive pitch this year, but the bank went much further than that. One standout deal was its role as sole global coordinator on Engro Fertilizer’s $185 million block placement, the largest-ever block sold by a private sector company in Pakistan. Credit Suisse helped promote the company with its Asian Frontier Market conference in February 2016. After building demand, it closed the deal on June 7.
The Swiss bank structured a receivables-backed loan for Pakistan International Airlines, a $130 million deal that was anchored by a commitment from Credit Suisse itself. That deal highlighted the Swiss bank’s twin strengths – a keen eye for structured solutions that has long been part of its culture and a willingness to put its balance sheet on the line.
Pakistan will offer plenty more opportunities for investment banks in the coming years. The country’s promotion to emerging market status by MSCI in early June will help drive equity flows, while the growing hunger of China to influence the country will lead to more M&A. So the race for business in Pakistan is likely to heat up among foreign players. For now, though, Credit Suisse’s Pakistan team appears comfortably out in front.