20000218

HSBC closing

down Lahore,

Islamabad

branches

RECORDER REPORT

LAHORE: The Hongkong and Shanghai Banking Corporation Limited (HSBC) has advised its customers and staff that the bank intends to close down its Lahore and Islamabad branches and would endeavour to serve the northern clients' banking needs from the two branches in Karachi.

The closure of the branches would cut the staff by 70 persons from the present strength of 190. However, some of the bankers would be accommodated to fill the vacancies in the south of Pakistan.

Even though HSBC intends to stay in Pakistan and utilise its Hexagon Computer System to meet the requirements of its corporate customers in the Punjab through dial-up modem facility, the news about Lahore and Islamabad branches has sent a signal of weakness of the economy in the marketplace, as HSBC is regarded as one of the two banking companies - the other being the Standard Chartered Bank - with the most expanding network in the emerging markets in the region.

Some more European banks are expected to follow in HSBC's footsteps and the Bank of America's Pakistan operations are already up for sale. The falling yields on treasury bills and the drying up of SWAP dollar funds, because of rescheduling in the wake of sanctions, are said to be forcing the foreign banks to cut back on Pakistan operations.

The high incidence of tax, i.e. 57 percent, on banks is said to be the highest in the region. Coupled with disallowing of legitimate expenses as per Prudential Regulations of the State Bank of Pakistan, the effective tax rate comes to around 72 to 77 percent. In 1998, HSBC's tax rate was said to be over 100 percent as interest on non-accrued income was subjected to tax.

HSBC is very strong in the area of trade finance in the country and is the only bank which enjoys ISO 9000 certification.