Family-owned banks remained top performers in 2010, according to an analysis carried out by the Chartered Financial Analysts'' Association of Pakistan. When analysed, the banks operating in the country to match the tough criteria set for CFAAP Awards 2010, most of the banks which emerged as top performers in the year 2010 were those owned and operated by long-term shareholders banks/business families having long-term commitment.
Tough criteria were observed by CFAAP for the awards as it evaluated the banks complying with Capital Adequacy Ratio (CAR) and Minimum Capital Requirement (MCR) together and having at least 3 years profitable history. The best banks were evaluated for profitability, efficiency, growth and solvency with profitability and solvency having 30 percent weight each while growth and efficiency have 20 percent weight each for the final scores. The reports showed that 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.
MCB 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 was the best bank, 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.
A banking expert commented on the CFAAP evaluation results that the family-owned banks had been posting excellent results consistently rather than taking risky short-term quick fixes. Their decisions are based upon long-term goals, 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 only local business communities produce long-term shareholders and they understand actual and practical ground realities rather than theoretical or academic reports prepared by some foreign bankers or economists.
Family-owned banks, due to these reasons, 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.
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 monitored targets, goals, budget together with new emerging trends and changed course of action accordingly, an analyst working in stock exchange said.
This, he added, leads senior management to deliver superior results in terms 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 world-wide. In Switzerland, many of family-owned banks have existed for well over a century, and some are between 200 and 300 years old.
He cited another example of a family-owned institution--M M Warburg & CO--which is one of the largest private banks in Germany. It claims to be independent of institutional influences and is completely in the hands of private individuals.
Brown Bros Harriman & Co--the oldest and largest partnership bank in the USA--weathered the financial crisis because it was not overleveraged and did not take reckless risks because the partners were not playing with shareholders'' money, he added.
He also mentioned Banco Santander of Spain, another successful family-owned bank, having won many awards and considered to be one of the most successful and strongest banks of Europe. The Santander Bank is owned by a family which manages it with a team of professionals. The bank survived easily the recent global financial crisis whereas many professionally run banks faced great difficulty and were forced to take the bail-out packages from their respective governments.