Pakistan's Banking Sector Current Situation And Critical Issues
Pakistan’s Banking Sector
Current Situation and Critical Issues
ISHRAT HUSAIN
Pakistan’s banking sector reforms which were initiated in the early 1990s have transformed the sector into an efficient, sound and strong banking system. The most recent comprehensive assessment carried out jointly by the World Bank and the IMF in 2004 came to the following conclusion:
“ for reaching reforms have resulted in a more efficient and competitive financial system In particular, the predominantly state-owned banking system has been transformed into one that is predominantly under the control of the private sector. The legislative framework and the State Bank of Pakistan’s supervisory capacity have been improved substantially. As a result, the financial sector is sounder and exhibits an increased resilience to shocks.”
The major changes that have occurred in the banking sector during the last decade or so can be summarized as follows:
a) 80 percent of the banking assets are held by the private sector banks and the privatization of nationalized commercial banks has brought about a culture of professionalism and service orientation in place of bureaucracy and apathy.
b) The banks that were losing money due to inefficiencies, waste and limited product range have become highly profitable business. These profits are, however, being used to strengthen the capital base of the banks rather than paying out to the shareholders. The minimum capital requirements have been raised from Rs. 500 million to Rs. 6 billion over an extended period in a phased manner. The consolidation of the banking sector into fewer but stronger banks will lead to better management of risk.
c) The banks that were burdened with the non-performing and defaulted loans have cleared up their balance sheets in an open transparent, across-the-board manner. Contrary to the popular myth the main beneficiaries of the wirite-offs of the old outstanding and unrecoverable loans
Current Situation and Critical Issues
ISHRAT HUSAIN
Pakistan’s banking sector reforms which were initiated in the early 1990s have transformed the sector into an efficient, sound and strong banking system. The most recent comprehensive assessment carried out jointly by the World Bank and the IMF in 2004 came to the following conclusion:
“ for reaching reforms have resulted in a more efficient and competitive financial system In particular, the predominantly state-owned banking system has been transformed into one that is predominantly under the control of the private sector. The legislative framework and the State Bank of Pakistan’s supervisory capacity have been improved substantially. As a result, the financial sector is sounder and exhibits an increased resilience to shocks.”
The major changes that have occurred in the banking sector during the last decade or so can be summarized as follows:
a) 80 percent of the banking assets are held by the private sector banks and the privatization of nationalized commercial banks has brought about a culture of professionalism and service orientation in place of bureaucracy and apathy.
b) The banks that were losing money due to inefficiencies, waste and limited product range have become highly profitable business. These profits are, however, being used to strengthen the capital base of the banks rather than paying out to the shareholders. The minimum capital requirements have been raised from Rs. 500 million to Rs. 6 billion over an extended period in a phased manner. The consolidation of the banking sector into fewer but stronger banks will lead to better management of risk.
c) The banks that were burdened with the non-performing and defaulted loans have cleared up their balance sheets in an open transparent, across-the-board manner. Contrary to the popular myth the main beneficiaries of the wirite-offs of the old outstanding and unrecoverable loans