The outstanding banks on Asia's frontiers

We continue to reveal why banks from across the region stood out in our annual Country Awards for Achievement. Today, it's the turn of Myanmar, Mongolia and Pakistan.

In May, FinanceAsia named the winners of its annual Country Awards for Achievement. In June, we presented the overall Best Bank in Asia award to Indonesia's BCA 

Today, we continue presenting our rationale for the awards with the winners from the frontier markets of Mongolia, Myanmar and Pakistan.



After a difficult few years for the Mongolian banking sector, things began looking up in 2017 after commodity prices started rebounding and the government managed to bring its finances back from the brink through two successful liability management exercises.

However, many of the country’s banks remain in a perilous position: severely undercapitalised and unable to deal with high NPL levels. The government is debating how to set up a bad debt asset management agency to manage them all.

One bank which has nothing to worry about is Khan Bank, the country’s dominant retail lender, serving 80% of Mongolian households through a network of 535 branches.

Khan Bank remains extremely strongly capitalised, reporting overall CAR of 23.65% at the end of FY 2017. NPLs did rise from 6.5% to 7.7% over the course of the year, but they are well below the estimated double-digit figure weaker banks are believed to be grappling with.

According to the bank’s own figures, it accounts for 25.4% of all banking system assets, 27% of loans and 28% of deposits. And there is no doubt it is going from strength to strength thanks to its focus on retail banking, which accounts for 97% of its profits.

Consequently each of the bank’s main financial and valuation metrics improved during 2017 after two years heading in the opposite direction.

Net profits rose 17.9% to $58.03 million over the course of the 2017 financial year according to S&P Capital IQ figures on the back of a 19.2% increase in assets (in dollar terms) to $3 billion.

Khan Bank’s efficiency ratios improved across the board too. For example, its cost to income ratio improved from 51.71% to 44.95% during FY 2017, while its NIM rose from 5.03% to 5.39% and ROAA jumped from 1.84% to 2.06%.

Bank officials say it withstood Mongolia’s downturn for a number of reasons. A key one is Khan Bank’s digital focus, although bank officials emphasise it intends to maintain a branch network in “every corner of the country".

It accounts for 60% of all ATM transactions in Mongolia and 40% of all e-banking ones.

Over the past year, it has launched a number of digital initiatives, including becoming the first Mongolian bank to introduce QR codes.

It has also made spectacular progress in credit cards after deciding to target young urban professionals and women. Card issuance has risen from 10,000 to 40,000, making Khan Bank the number one player.

A second focus is SME lending, where the bank has set up dedicated outlets at some of its branches and assigned relationship managers.



Myanmar’s banking sector is becoming more competitive as the government issues licenses to four new private sector banks to wrestle with the 24 already in operation, not to mention four state-owned banks and 13 foreign-owned banks.

But when it comes to judging this award, there is only one contender: the country’s largest private sector bank, Kanbawza (KBZ). It is also the country’s largest corporate taxpayer overall and has been for six years.

For FinanceAsia this is the third year for which a Country Award has been given to a bank in Myanmar, acknowledging the economic progress the country is making.

KBZ’s asset growth has been strong, rising 16.4% during the 2017 financial year compared to 13.16% the year before that according to SNL figures. As a result, the bank reported assets of $7.23 billion at the end of 2017.

Most of the growth has been from deposits rather than loans. The former registered growth of 19.3% during 2017 to $6.65 billion, while the latter grew 10.7% to $4.64 billion.

As a result, the bank’s loan to deposit ratio shifted from 75.2% to 69.92% over the course of the financial year.

KBZ is growing a lot faster than Mynamar’s overall GDP growth rate, which was 6.4% in the first quarter. However, the Asian Development Bank (ADB) expects this figure to pick up to 7.2% in 2019 if the country can leverage multilateral assistance and introduce reforms to facilitate better infrastructure development.

Fast growth is also impinging on KBZ’s capital ratios. Overall CAR stood at 10.19% at the end of 2017, down from 11.12% in 2016, suggesting it will need to raise new capital soon if it wants to maintain its rate of loan growth.

On the corporate banking side, recent initiatives include an agreement with Thai Exim to promote cross-border trade and investment. The bank has been steadily increasing its international footprint over the past couple of years opening representative offices in Singapore and Thailand.

On the retail banking side, KBZ continues to expand its footprint in a country that remains severely under-banked, targeting 1,000 branches by 2020. However, one of its most interesting initiatives is its most recent.

Given more people in the country have a smartphone than a bank account, it aims to jump straight to mobile banking. But it has not chosen a domestic player to tie-up with but a Chinese one: Huawei.

This is likely to be a smart move given China is Myanmar’s largest trading partner and has made the latter a key part of its Belt and Road Initiative.



There are normally two banks in contention for this award, Pakistan’s largest private sector bank (Habib) and its most efficient (MCB).

But this year there was really only one after Habib Bank’s net profit was crushed after it agreed to pay the New York State Department of Financial Services $225 million to settle an enforcement action for infringing anti-money-laundering rules.

MCB Bank, on the other hand, is going from strength to strength, although a cursory glance at its figures might suggest otherwise. Many of the bank’s efficiency ratios deteriorated during the 2017 financial year, but only because it finalised its merger with the far weaker NIB Bank, Pakistan’s 11th largest by assets.

This acquisition gave MCB a lot of additional NPLs in addition to Temasek’s Fullerton Financial Holdings as a new shareholder. As a result, NPLs spiked from 5.65% to 8.92% between 2016 and 2017 according to SNL figures.

Other efficiency ratios were also hit. The bank’s cost to income ratio rose from 39.56% to 49.03% and its ROA deteriorated from 2.1% to 1.69%.

However, bank officials say the effect will be temporary and told FinanceAsia they are confident they will not need to book further credit losses on the new NPLs. Instead they hope to make money from them as they work through a three-year recovery programme.

Bank officials also note the cost to income ratio is starting to come back down again, forecasting a 46% ratio for the first quarter. They believe it will be back to its previous best-in-class level around the 35% range in the next 18 months.

The acquisition of NIB has made MCB a larger bank, boosting assets by a fifth to $12.45 billion at the end of 2017. However, the main reason for the acquisition was to boost MCB’s Islamic banking credentials.

The combination of MCB’s 76 Islamic branches and NIB’s 90 Islamic branches created a mid-sized Islamic bank as a wholly owned subsidiary of MCB. Bank officials say it will concentrate on rural provinces where demand for Islamic banking is stronger.

The overall bank’s strategy has not changed. It will continue trying to improve fee income by cross selling to existing corporate customers and will make a greater push into consumer banking.

Here it believes two factors will drive growth. Firstly, tax cuts have boosted incomes, creating demand for mortgages, auto loans and credit cards.

Secondly, the government also wants to provide housing for low-income families, an area that MCB concludes has great potential over the next few years.


Pakistan’s largest private sector bank spent 2017 busy doing what it is best at: leveraging its extensive foreign network, its large balance sheet and its equally large investment banking department to finance and structure Pakistan’s benchmark infrastructure projects.

The stand out of the year on a number of levels was the financial close of the $1.37 billion stage one funding for the 4,320MW Dasu Hydro Power Dam located on the Indus River in the Kohsitan District of Khyber Pakhtunkhwa. This represents the $4.2 billion flagship project of the Nawaz Sharif administration and is an unusual one in a country, which has previously made little use of hydropower

HCB was at the very heart of the deal both as an investor (it took 25% on its books) and as lead advisor and shariah structuring agent.

Investment bankers describe the transaction as complex and innovative. In terms of the former, the overall structure was 61.11% backed by government guarantees and 38.89% by the assets of the Water & Power Development Authority (Wapda).

On top of this, there was a further division between 60% Islamic and 40% conventional finance. For example, the Wapda-backed portion was structured as a syndication term loan with a conventional and Islamic portion, while the government-guaranteed portion was also split between a privately placed conventional bond and a sukuk one.

The sukuk bond in particular underscored the deal’s innovative credentials. Until this point, sukuk bond issuance in Pakistan had been limited. Since then, a number of issuers have taken advantage of the sector’s growing liquidity to tap it for financing.

The bank’s second major project finance deal has not yet closed, but officials say the bulk of the advisory work has now been completed on a $1.8 billion financing to build Pakistan’s first private sector transmission line along the all important China Pakistan Economic Corridor (CPEC).

Habib Bank is working as financial advisor for China Electric Power Equipment & Technology a subsidiary of State Grid Corp. Aside being a key Belt and Road project, it is also a first of its kind, which means that the advisory work entailed negotiating and then structuring the project documents and tariffs from scratch.

Other ongoing financings within the CPEC include two power plants in the Thar coalfields of Sindh province: a $520 million for TharEnergy and $1.53 billion for Engro Powergen Thar and Sind Engro Coal.

Right at the end of the awards period, HBL also acted as a buyside financial advisor when Kot Addu purchased a 17.4% stake in Hub Power Co (Hubco) from Dawood Hercules and others.


In 2017, there were two main landmarks for Pakistan’s broking industry. Both happened in June.

At the beginning of the month, the country regained MSCI emerging market status for the first time in nearly a decade. Then at the end of the month, the Pakistan Stock Exchange joined the ranks of the market’s 560-odd companies after selling a 20% stake in itself.

Both moves will undoubtedly prove positive for the stock market over the medium to long term. Over the shorter-term, however, MSCI inclusion marked a high point for Pakistan’s equity markets, which fell sharply during the second half of the year.

The KSE 100 Index ended 2017 down 15.34%, while broking volumes fell 16% by number of shares traded each day to 236 million. Foreigners were also net sellers to the tune of $433.2 million.

This downcycle had a big impact on broking revenues and margins, but some houses managed to keep growing both top and bottom line. This included Topline, Pakistan’s second largest securities house by revenues and its largest by net profit.

During the 2017 Financial Year, it managed to increase its revenue base by 29.2% and its profits by 52.69%. The broker’s management attributes this to Topline’s ability to continue winning market share among foreign investors and also the number of block trades it executed off-market, one of its specialities.

There are no official foreign broking figures available, but Topline estimates it captures 15% to 20% of all foreign flows and says more than 20% of foreign investors are registered with it. As a result, Topline is one of only two firms, estimated to derive a majority of their revenues from foreign investors.

Senior bankers attribute its success to two key factors. The first is that Topline does not have its own proprietary trading book so there is no conflict of interest.

Secondly, there is the strength of its research offering, which has a strategic and bottom-up focus. Pakistan’s CFA Society recognised this at its most recent awards, naming Topline top broker and research analyst.

At the head of the research team is Saad Hashemy, who has 18-years experience in Pakistan, second only to his boss, CEO Mohammed Sohail, who has 23-years.

The firm covers two-thirds of the market and has an active investor access programme encompassing four to five global roadshows per year, with recent pit stops including Dubai and New York. It also brings about 15 to 20 fund managers to Pakistan each year too.


Habib Bank has had a formal presence in China since 2005 after it opened a representative office in Beijing. It also lays claim to being the first bank in South Asia to establish a branch in China with operations going live in 2017.

That access has helped Habib Bank to achieve some notable Belt and Road achievements in Pakistan. To name two, it has been mandated as financial advisor to China Electric Power Equipment and Technology, a subsidiary of State Grid Corporation of China, to develop transmission lines; it is also the financial advisor, local currency-mandated lead arranger for the Sindh Engro Coal Mining Company and Engro Power Thar – a $2 billion coal power project.

Habib Bank has been instrumental in attracting foreign currency to Pakistan. For the above coal power project, it worked tirelessly to get Sinosure and a host of Chinese banks to buy into the story. It is also the first time Chinese finance of this size was secured for a private sector project under Sinosure’s buyer Credit Policy.

Last year’s acquisition by Chinese exchanges of a 40% equity stake in the Pakistan Stock Exchange was a hugely significant step for the development of Pakistan’s capital markets – a show of confidence from the China Financial Futures Exchange, Shanghai Stock Exchange and Shenzhen Stock Exchange in the Pakistan growth story and their first overseas acquisition.

Habib Bank and the Pak China Investment Company were part of that investment consortium.


Standard Chartered has absolutely no competition for this award so the situation is likely to continue for some years until newly-arrived Chinese state-owned banks start to entrench themselves more deeply.

And where this award is concerned, that's probably just as well since 2017 was  challenging for Standard Chartered, with profits down 14.79% to $78.27 according to SNL figures.

The bank attributes this to a margin squeeze, which led its NIM to fall from 4.69% to 3.85%. Nearly every single efficiency ratio was down during the past financial year, with ROA falling from 2.07% to 1.66% and ROAE from 15.85% to 13.69%.

One of StanChart's greatest strengths lies in its ability to mobilise low-cost deposits. Its 93 branches may represent just 1% of the industry total, but they holds almost 3% of deposits.

This means Standard Chartered generates the highest deposit ratio per branch at the lowest cost, equating to a 98% CASA mix for retail. However, in 2017, overall deposits fell from $3.48 billion to $3.39 billion.

Loans, on the other hand, were up 11.4% to $1.25 billion, leading to overall asset growth of 2.3% to $4.65 billion.

During 2017, one of the bank’s main focuses was minimising costs and here it was more successful with the cost to income ratio improving from 46.86% to 46.14%.

It also brought down its high NPL ratio from 16.37% to 12.45%.

Where retail is concerned, its big push is into digital in line with all its global peers.

During the awards period, it launched its second fully digital branch at Packages Mall in Lahore. In all, its digital footprint includes two digital branches, 197 ATMs, 28 CDMs and 53 CDKs.

The bank’s other great strength in Pakistan is its Islamic banking franchise, Standard Chartered Saadiq. Since it was established in 2004 it has become the second largest Islamic window in the country.

Its expertise was on display during 2017 when the bank arranged a $700 million loan for the Government of Pakistan, which had a dual closure in June 2017 and April 2018. The 10-year deal has an Islamic commodity Murabahah facility with a guarantee from the World Bank’s International Bank of Reconstruction and Development.

The financing used a commodity-based Murabahah agreement alongside a conventional loan agreement. It was also structured so lenders would not use up their country limits to Pakistan by ensuring they had 100% World Bank cover by the time it reached the half way mark.


Credit Suisse’s hold over this award appears to get stronger each year. It is a reflection of the time and resources the investment bank ploughs into the country, plus its wider strength across Asia’s emerging and frontier markets.

But Pakistan has special resonance for the team since Rehan Anwer, who heads Asian frontier markets and director, Babur Rais, both come from Pakistan.

As FinanceAsia has highlighted in previous years, Credit Suisse has a dedicated research team for Pakistan as well. The Singapore-based team covers about 36% of the KSE’s market capitalisation.

So far, the bank’s business has not been impinged by the growing presence of Chinese lenders. And in 2017, Credit Suisse had another strong year deal-wise, raising $1.4 billion after completing five deals. It has a further five ongoing.

On the structured finance side, there were a number of repeat offerings.

Top of the list were a $650 million and a $255 million syndicated term loan for the Government of Pakistan. Credit Suisse acted as sole advisor and sole mandated lead arranger on the former and a lead advisor and lead arranger on the latter.

The two deals respectively marked the sixth and seventh facilities issued by the government over the past decade.

The bank also executed a second structured receivables backed syndicated financing facility for Pakistan International Airlines (PIA). Proceeds from the $150 million deal repaid a bridge facility and pre-delivery payments.

The bank also displayed its structural innovation after winning the mandate to act as sole mandated lead arranger and original lender for a $350 million term loan to Wapda.

The deal was a core part of the overall $1.37 billion stage 1 funding of the Dasu Hydro Power project and was hotly contested.

The 10-year loan has a five-year grace period and the key to its success was the way Credit Suisse used the partial guarantee being provided by the World Bank’s International Development Association (IDA). The US bank back-ended the guarantee, in the process reducing the overall financing cost.

On the M&A front, Credit Suisse was also active right at the end of the year, acting as sell-side financial advisor in the sale of a 17.4% stake in Hubco to Kot Addu.

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