Meezan Bank to triple Pakistan branches and tap Middle East market

By Naween A. Mangi
Bloomberg News

Wednesday, May 30, 2007

KARACHI: Meezan Bank, Pakistan's biggest Islamic lender, plans to open banks overseas and triple the number of branches at home after capturing half the market in the world's second-most populous Muslim nation, its chief executive said.

"We have received requests to set up affiliate companies in Arab countries where we will keep a minority shareholding and manage the banks," Irfan Siddiqui, the chief executive, said in an interview at the bank's head office in Karachi on Tuesday. "We feel positive about Syria and others such as Egypt and Dubai are still in the initial thought process."

Meezan wants to extend its lead in Pakistan before ABN AMRO and Standard Chartered open more branches, to benefit from an expected fivefold increase in Islamic finance. Global assets complying with Shariah law are worth $500 billion and growing by more than 10 percent a year on rising oil wealth in the Middle East, Standard & Poor's estimates.

"Conventional banks have expanded regionally into the Gulf to capture trade finance and remittances flow," said Yasir Syed, an investment analyst at AKD Securities in Karachi. "This strategy could equally benefit Islamic banks, but other than these areas there is enough growth to take advantage of inside Pakistan."

Remittances from Pakistanis living overseas increased 23 percent to a record $4.45 billion in the 10 months that ended on April 30, central bank data show. Pakistani exports rose to a record high of $13.9 billion in the same period and imports climbed to a high of $25 billion, according to the Federal Bureau of Statistics.

Meezan, Pakistan's first Islamic bank, will spend as much as 1.5 billion rupees, or $25 million, to extend its network to 200 outlets in 50 cities by the end of 2009, Siddiqui said. Meezan has 64 branches in 21 cities across Pakistan.

"The market for Islamic finance is ripe in the most unexpected places across the country," said Siddiqui, who has been at the helm since the bank was licensed in 2002.

Meezan's shares, which have risen 33 percent this year, fell 1.1 percent to 26 rupees on the Karachi Stock Exchange on May 29.

Meezan will increase the number of branches to 95 by December, he said. The bank opened 34 branches in 2006.

The Islamic finance industry in Pakistan may grow fivefold over the next five years to 15 percent of all banking assets, the central bank governor, Shamshad Akhtar, said in January. It is expected to be one of the fastest-growing segments in banking, she said.

Islamic law bans the payment and receipt of interest, prohibits investment in businesses like gambling and alcohol, and stresses profit sharing. Pakistan is the world's second-most populous Muslim nation after Indonesia, and 97 percent of its 160 million people are followers of the faith.

Six companies, including Dubai Islamic Bank and Emirates Global Islamic Bank, hold Islamic banking licenses and operate 108 branches, according to central bank data.

Thirteen conventional banks, including National Bank of Pakistan and MCB Bank, have also opened a total of 58 Islamic branches, according to central bank data. Three conventional banks had Shariah-compliant branches in 2003.

Meezan had 37.5 billion rupees in deposits as on March 31, accounting for almost half the total deposits at Islamic banks.

"We have had deposit growth of 60 percent a year without any major advertising and we expect this to continue," Siddiqui said.

Pakistan's Islamic banking industry expanded its assets by 42 percent in the six months that ended on March 31, to 134.6 billion rupees, according to central bank data.

Meezan will raise its capital to 6 billion rupees by December 2008 through "internal generation," from 4 billion rupees, Siddiqui said.

Plans to raise additional capital may be considered if "major overseas expansion plans" are finalized, he said, without giving details.

The bank's shareholders will be partners in the new ventures overseas, Siddiqui said.

Meezan Bank is 30 percent owned by Pak Kuwait Investment, an alliance between the governments of Pakistan and Kuwait. Shamil Bank of Bahrain, Kuwait-based Noor Financial Investment and Islamic Development Bank respectively own 26 percent, 16 percent and 9 percent of the bank.

The bank's profit almost tripled to 604 million rupees in the year that ended on Dec. 31, from 223 million rupees in 2002, according to its annual report.

Lending to companies accounts for 65 percent of the bank's 28 billion rupees in loans, Siddiqui said. One-fifth of its loans are for cars and homes, and 15 percent are to small companies, he said.

The bank also hopes to introduce agriculture credit and microfinance products, he said.

Pakistan's economy is estimated to have expanded 7 percent in the year ending June 30, Prime Minister Shaukat Aziz said on Monday. The government has targeted average annual economic growth of 7.5 percent for the next five years.

"If we hadn't been supported by economic growth, we couldn't have achieved even half the growth we have," said Siddiqui.