By Syed Fazl-e-Haider
QUETTA, Pakistan - The Industrial and Commercial Bank of China (ICBC), the world's second-largest bank, is looking to start operations in Pakistan. It is exploring the possibility of establishing its presence in Pakistan to provide financial support to Chinese companies investing in the South Asian country and other development partners engaged in infrastructure development and financial business.

The National Bank of Pakistan (NBP) and the ICBC have agreed to cooperate in the banking and financial sectors in both countries. A declaration calling for exploring the possibilities for mutual cooperation between the two entities was signed last Friday by the chairman of the ICBC board, Jiang Jianqing, who led a seven-member ICBC delegation.

The ICBC intends to explore the possibility of establishing its branches and acquiring Pakistani banks to provide financial services. According to Jiang, Pakistan's sustained economic growth of 7% has prompted the ICBC to establish an economic link by opening branches in the country. He said that if Pakistan maintains its economic growth momentum, it will become an economic powerhouse in the region, attracting substantial foreign investment. He said he appreciated the reforms introduced by the Pakistani government and held separate meetings with the presidents of NBP and Habib Bank Ltd (HBL) and discussed ways to expand cooperation.

The financial sector has significantly contributed to the overall growth of the Pakistani economy and led to the country's improved international credit rating. The recent successful launching of Pakistan's sovereign bond is seen as a manifestation of investors' confidence in Pakistan's policies. NBP, HBL, Muslim Commercial Bank and Allied Bank of Pakistan have shown high growth in recent years. It is expected that consumer lending will continue to gather momentum as more banks focus their energies on gaining a share of the market, which is largely unpenetrated.

With 311.8 billion yuan (US$41 billion) in assets, the ICBC is the second-largest bank in the world and growing at 30% per annum. It specializes in infrastructure finance, corporate banking, personal banking, cash management, asset management, Internet banking and international banking. It is also a leader in financial services and product innovation based on advanced information technology, corporate governance and risk management.

It has a large network of 18,000 branches in China and around the world. It is a leading financial player in China with a large customer base and multi-dimensional business structure. In October 2005, the ICBC was officially transformed from a state-owned commercial bank into a shareholding company and renamed as the Industrial and Commercial Bank of China Ltd. The new entity has a registered capital of 248 billion yuan and 248 billion shares.

Pakistan and China already enjoy strong economic and trade relations under their free-trade agreement. Pakistan, under an institutionalized arrangement of the Pakistan-China Joint Economic Forum, is in the process of identifying infrastructure projects, including the development of hydropower and large dams. Similarly, Pakistan has established a joint investment company with China Development Bank to support Chinese firms that are establishing joint ventures with Pakistani companies and the large number of infrastructure projects in the country.

The ICBC can explore the possibility of investing in the Pakistan-China Special Economic Zone, where most Chinese companies would set up their businesses for contract manufacturing to market their products in West Asia. The ICBC's operations in Pakistan will act as a bridge between the two countries as the two countries strive to benefit from the expertise of Chinese and Pakistani banks.

Pakistan is tipped by foreign investment bankers as a potential hotbed of equity issuance activity because of its high economic growth and the government's aggressive privatization policy. The $129 billion Pakistan economy is expected to expand 8% annually over the next five years. Foreign portfolio investment in the local bourses has also shown an upward trend, signifying an increasing foreign interest in the country's capital markets. Foreign portfolio investment, as represented by the Special Convertible Rupee Account, showed a net inflow of $104 million in January alone; an inflow of $23 million was recorded on just one day - January 31. Interest exhibited by foreign companies in buying stakes in Pakistani companies has also been well received by the market through the country's privatization program.

China's banking sector is moving toward diversification. The sector has introduced various service delivery models, and a range of product and service offerings are available for retail and corporate customers. For the past five years, economic growth in Asian markets has been driven by strong consumer demographics, political and market reforms and economies of scale in production. The Asian markets are likely to provide the greatest opportunities for global financial-services companies looking for future growth. This trend is likely to continue in the Chinese market after the opening of its banking sector in accordance with World Trade Organization requirements. It presents both domestic and financial institutions with challenges and opportunities.