Ur Rahman Khan, Group Head, Corporate and Investment Banking at Bank Alfalah.
“This is one of the many energy projects that we are involved in. Our presence in the traditional as well as the renewable energy space reflects our commitment to support the energy sector in the country,” Khan added.
He said banks assess the decision to provide financing to any project on the broad parameters, including commercial terms and viability, sponsors, bankability and tenor.
“While we are keen to finance such projects, we will first assess the sponsors, suppliers and technology, and then play our role in such projects,” Khan said.
However, an investment banker at the National Bank of Pakistan (NBP) said higher PSDP and CPEC are not the new stimuli for the banks.
The NBP has been involved in financing the mega development projects much before the CPEC was announced.
“Different banks have participated with us in syndicated project financing facilities in the past,” the banker said. “The bank will continue to have an appetite for financing projects in areas including but not limited to infrastructure and power.”
In Pakistan, banks and development finance institutions (DFIs) have remained a major source of funding infrastructure investment in the private sector.
The bank infrastructure project financing portfolio continued to grow over the years.
A glance over the State Bank’s quarterly infrastructure finance review shows that such disbursements by banks and DFIs rose to Rs367 billion in 2014 from Rs203.2 billion in 2008.
A total of 392 projects mainly in power generation, telecom, power transmission and oil and gas sector were undertaken in 2014 as compared to 291 in 2008.
Regardless of banks’ renewed interest in infrastructure financing, some analysts feel that this is a right time for the creation of a full-fledged financial institution that could meet long-term debt financing needs of the public and the private sectors.
They said the boom in infrastructure financing requirements will unnerve banks in future, as they have certain risks. DFIs have limited capability to take up large-scale projects, which have long life span.
“Banks need to take into account their risk appetite [as they] cannot be excessively exposed to risks in any particular sector,” Khan said. “However, recent experience has demonstrated that commercial banks have developed the expertise to slightly manage longer tenors on development projects.”
Kashif Suhail, Head of Corporate and Investment at Pakistan Kuwait Investment Company said: “Banks have huge liquidity [leverage] and it will further increase when the long-term government papers will be matured.”
He added: “Banks finance projects through generating their funds via deposits. But the DFIs finance the projects only through equity. They have certain limitations as compared to commercial banks and their exposure to financing is also limited.”
Financial analyst Mubashar Mirza said few specialised long-term infrastructure financial institutes are indispensable for a developing country like Pakistan.
“Going forward, Pakistan may seek help from the sovereign funds of China, Middle East, Turkey or other friendly countries,” he said.
An estimate said Pakistan needs to invest around 10 percent of GDP until 2020 to close its enormous infrastructure gap. Presently, infrastructure investment as percentage of GDP stands at six percent.