Sohailuddin Alavi, March 12, 2013 (email@example.com)
Opportunities and Challenges facing theFinancial Sector in Pakistan:
HypothesisFinancial services sector in Pakistan has evolved from conventional and conservative through customerhungry competition during the last two decades much fueled by global deregulations resonated into
Pakistan’s financial sector; influx of mushroom local banks in the private sector
; and, opening of branches by many foreign banks. Ironically, the cost of transition far exceeded the envisionedadvantages so much so that at a point in time smaller local banks and single branch multinational bankswere either acquired by bigger ones or they merged amongst themselves to upscale their shock bearingthresholds. Citi Group recently retreated back to its earlier position, which is a clear acknowledgementof the scenario noted above. In short, on the whole every bank that enthusiastically embraced theimpulsive competition posted very little to no sustainable advantage on their balance sheets. On thecontrary, banks that approached the competition rationally and cautiously were able to do no harm totheir balance sheets.Interestingly, the US financial melt down that truly turned into a global syndrome preempted the StateBank of Pakistan like many other Central Banks for strengthening laws and regulations that were in theinterest of the depositors in particular and of the sector in general. Signing of Basel III agreement;enforcement of Corporate Governance; strengthening of risk management and compliance regulations;etc. are but a few measures taken by many Central Banks including State Bank of Pakistan. The result isnow the consumer hungry competition has been harnessed within the bounds of prudent laws,regulations and practices that are technically aimed at
protecting the banks’ from sliding into “havoc”
situations. But the damage to banking culture that affected most of the banks as a by-product of consumer hungry competition entails bigger challenges for the much needed correction.In conclusion, to put the banks back on prudent lines is a humongous task. Each stakeholder in thesector has to play its role in this pursuit. The indicative interventions are summarized below:i.
Re-regulations and their implementation in the letter and spirit by the Central Bankii.
Implementation of code of “Corporate Governance” in the letter and spirit
Implementation of international best practices in risk management, compliance, internalcontrols/audit at every level in banksiv.
Intensive re-orientation and capacity building of employees at each level augmented by rigorousperformance management system and policiesv.
Enforcement of depositor protection laws and regulations