Pakistan Banking Sector: the Need for Second Tierof Reforms
Pakistan Banking Sector: The Need for Second Tier of Reforms Dr. Shamshad Akhtar Governor, State Bank of Pakistan Pakistan Banking Association, U.K 12 November 2006
Introduction 1. Banking sector of Pakistan has been transformed within a short period of 5 years (CY2000-05) from a sluggish and government-dominated sector to a much more agile, competitive and profitable industry. Speed and sequencing of banking sector transformation and its role in promoting economic growth is now a leading story of a sector success. Within Pakistan it offers a story of what effective leadership of regulator and change management and corporate governance can achieve and offer. Outside Pakistan it is serving to offer rich lessons in what difference governance of regulator can make and how bank restructuring and privatization can change the landscape of the industry. At this session of UK’s Pakistan Banking Association I propose to share with you few key elements of this success story. I would however be amiss if I did not share with you the profitability and gains in banking industry and its role in promoting economic growth. 2. The banking industry in Pakistan will continue to enjoy these trends and has promising prospects. However, sustainability of banking sector performance is dependent on continued macroeconomic stability, stronger vigilance on the sector to ensure effective compliance of industry with the prudential regulatory and supervisory framework, and banking sector’s maturity to reorient their business models to enhance their penetration ratio and address the asset: liability mismatches. At Pakistan to ensure macroeconomic stability coupled with effective risk management and mitigation will be critical to Pakistan’s future and a precondition for sustainability of banking sector reforms. 3. The astounding growth of banking sector has stimulated and leveraged growth across the board. Major reforms in the banking sector have resulted in a more resilient and efficient
Introduction 1. Banking sector of Pakistan has been transformed within a short period of 5 years (CY2000-05) from a sluggish and government-dominated sector to a much more agile, competitive and profitable industry. Speed and sequencing of banking sector transformation and its role in promoting economic growth is now a leading story of a sector success. Within Pakistan it offers a story of what effective leadership of regulator and change management and corporate governance can achieve and offer. Outside Pakistan it is serving to offer rich lessons in what difference governance of regulator can make and how bank restructuring and privatization can change the landscape of the industry. At this session of UK’s Pakistan Banking Association I propose to share with you few key elements of this success story. I would however be amiss if I did not share with you the profitability and gains in banking industry and its role in promoting economic growth. 2. The banking industry in Pakistan will continue to enjoy these trends and has promising prospects. However, sustainability of banking sector performance is dependent on continued macroeconomic stability, stronger vigilance on the sector to ensure effective compliance of industry with the prudential regulatory and supervisory framework, and banking sector’s maturity to reorient their business models to enhance their penetration ratio and address the asset: liability mismatches. At Pakistan to ensure macroeconomic stability coupled with effective risk management and mitigation will be critical to Pakistan’s future and a precondition for sustainability of banking sector reforms. 3. The astounding growth of banking sector has stimulated and leveraged growth across the board. Major reforms in the banking sector have resulted in a more resilient and efficient