AFTER earning huge profits by investing in government debt papers for last few years, banks are now mulling to tap big business financing opportunities.

The government’s plans to boost economic growth while numerous projects coming up through the $46bn China-Pakistan Economic Corridor (CPEC) should facilitate this switch-over.

Several top bankers reached by this writer claim they are readying themselves to exploit new business opportunities, adding that the internal systems are being reoriented for this purpose.

Major banks are upgrading their project financing and business development cells, or have already done so

The state-run National Bank of Pakistan has established a new business development unit, to get an edge over its competitors. Other big banks — HBL, UBL, MCB Bank, ABL and Bank Alfalah — are also upgrading their project financing and business development cells, or have already done so.

Industry sources say that another key consideration for all banks is forex and interest rate management amidst economy-fixing in Pakistan and concerns about global economic growth, and volatile political conditions in the Middle East.

Once CPEC-related projects start coming up, requiring more complex, cross-country, inter-corporate financing requirements, banks would need better projection of forex and interest rate movements and improved regulatory compliance skills, says a central banker.

That’s where training programmes and internal checks on prudent banking will count, he says.

Senior bankers say board room discussions these days are often spiced up with fantasies of how banks will benefit from an upcoming economic boom. In these discussions documentation and revenue-boosting drives, trickle-down impact of CPEC, the vast untapped potential of ITC and youth enterprise and the government’s plan to enhance agricultural productivity are cited as some key triggers of this boom.

“Regardless of the question marks on timing, certainty, enormity and practicality of each of these projections, some banks are eyeing them as real opportunities,” says president of one of the top five banks.

Conservative bankers are simply excluding the prospects of CPEC-related projects from their short-term, or even mid-term, business plans. They fear that provinces’ grievances on the planned execution of CPEC and the federal government’s apparent reluctance to furnish full, final and specific details of CPEC-projects might delay their implementation for two, three years.

“But even minus CPEC, the current focus on energy sector, documentation drive for mainstreaming informal industries, plans to boost agricultural productivity and promote youth entrepreneurship and ITC businesses give us reasons to be optimistic (about uptick in banking activity),” says a senior HBL executive.

In the first six months of this fiscal year (up to Jan 5), banks’ lending to private sector rose to Rs212bn against Rs155bn in the same period of the last year. The federal government borrowing from banks slightly increased to Rs654bn during the period under review from Rs623bn.

“This trend will continue till the end of FY16,” says a senior UBL executive. He sees higher demand for consumer and trade finance, project financing in energy and food sectors and running finance for agriculture and some selected industries as engines of private sector credit growth.

“The government sector’s net borrowing from banks may, on the other hand, remain static at the last year’s level or increase only slightly.”

Senior bankers say two things merit special consideration for banks that really want to ride on the future tides of big-ticket project financing and exploit opportunities in an expanding domestic economy. “First is deposit mobilisation,” says head of a local bank.

The speed with which currency in circulation is growing and single-digit growth in bank deposits “should prompt banks to design new products to attract fresh deposits for financing or co-financing big infrastructural and energy projects, two hallmarks of the CPEC.”

Secondly, “banks ought to invest smartly in human and technological resources to be able to become effective partners of banking consortia through which most of the CPEC projects would be financed.”

Unlike in the 1990s when banking consortia comprised mostly local and those foreign banks that were operating in Pakistan; future project financing would require formation of banking syndicates comprising local, Chinese and foreign banks not operating here, bankers say.

They believe this is inevitable due to almost obscure financial make-up of the $46bn CPEC i.e. how much of the promised funds is debt and how much is equity.

Central bankers also say that amid hopes for economic revival and big-ticket CPEC projects, banks are positioning themselves for future business growth. But after years of easy money-making via debt papers investment, that has brought down the advances to deposit ratio, to just around 50pc, banks will have to enhance expertise in appraisal of credit proposals’, product development and smooth conduct of day-to-day business, they say.

Published in Dawn, Business & Finance weekly, January 18th, 2016