Family-owned banks top performers

KARACHI - The large and medium-sized banks owned and operated by business families performed remarkably well in 2010. Notably, such local commercial banks outperformed other banks in terms of profitability, growth and solvency, according to the evaluation results by the Chartered Financial Analysts Association of Pakistan. The Chartered Financial Analysts Association of Pakistan (CFAAP) organised CFAAP Awards 2010 recently. As per the reports, MCB Bank and Bank Al-Habib won the awards for the best bank under large and medium banks category while runner ups in the said categories were Allied Bank and Habib Metropolitan Bank respectively, all of which are being managed by long term shareholders. CFAAP evaluated those banks only who were complying with Capital Adequacy Ratio (CAR) and Minimum Capital Requirement (MCR) together and have at least 3 years profitable history. The best banks were evaluated for profitability, efficiency, growth and solvency with profitability and solvency having 30 per cent weight each while growth and efficiency have 20 per cent weight each for the final scores. According to final results by CFAAP, MCB Bank was the best bank by gaining 1.15 for profitability, 0.94 for efficiency, 0.93 for growth and 1.74 points for solvency with weighted average score of 4.77 while the runner-up Allied Bank had 3.97 weighted average score with 1.45 points for profitability, 0.94 for efficiency, 0.73 for growth and 0.84 points for solvency. Similarly, in medium-size banks category, Bank AL-Habib and Habib Metropolitan Bank were top performers for gaining the weighted average scores of 5.02 and 3.79 respectively. Commenting on the CFAAP evaluation results, a banking expert said that the family-owned banks are posting excellent results consistently as their decisions are based upon long-term goals rather than taking risky short-term quick fixes, as in the case of short-term investors, to get quick return on investment without thinking about the stability and sustainability of the bank. He said that all long-term shareholders belong to the local business communities and understand actual and practical ground realities rather than theoretical or academic reports prepared by some foreign bankers or economists. Due to the above reasons family-owned banks provide a powerful mechanism to understand uncertainty and volatility in the business and develop the right strategies to economically manage any such exposures, he added. An analyst working in stock exchange said that the commitment of family-owned groups to these banks made them the most profitable and efficient banks during the past year despite facing severe financial crunches at large scale as these shareholders closely monitor targets, goals, budget together with new emerging trends and change course of action accordingly. This, he added, leads senior management to deliver superior results in term of profitability, stability, risk mitigation, customer loyalty and liquidity, while ensuring more clarity around goal setting so that everyone is working towards a common aim. He said that there are many success stories of family-owned banks worldwide. In Switzerland, many of family-owned banks have existed for well over a century, and some are between 200 and 300 years old. Brown Bros. Harriman & Co., the oldest and largest partnership bank in the USA which weathered the financial crisis because it was not overleveraged and did not take foolish risks because the partners were not playing with shareholders money, he added. Banco Santander of Spain, another successful family-owned bank, has won many awards and considered to be one of the most successful and strongest banks of Europe.