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The banking sector of Pakistan changed a lot since 1990s after the privatization of the
government owned banks. At that time there were only five public banks. After that in early
2000, the privatization process reached to its peak and now almost all the banks are privatized
with the exception of few, for example National Bank of Pakistan, The Bank of Khyber, The
Bank of Punjab, Sindh Bank. Although the banking sector of Pakistan is considered a strong
banking system but still there are certain problems and issues like non availability of banking
facility to far-off areas, decreasing profit rates on deposits, decreasing trend of the deposits
mobilization, limited microfinance facility provision to small farmers, higher rates on consumer
financing, non diversification of the advances and loans, excess competition etc that needs to be
addressed by the State Bank of Pakistan as these issues have serious impact on the overall
economy of our country.
In this study, the following weaknesses and issues have been highlighted:
1. Non Availability of Banking facilities to far-off areas:
This is one of the major issues of the banking system of Pakistan. The banking facilities
are available to only a limited population and a major portion of the population is still
deprived of the banking facilities. There is no concept of providing banking facilities to
rural areas. Although, Branch less banking has started to operate in Pakistan but still its
effect is not visible.
2. Decreasing Profit rates of deposits:
In the past few years, there is a decreasing a decreasing trend in profit rates on different
deposit accounts. This issue has seriously affected the saving pattern of the economy.

Because of the decreasing trend of the profit rates, there is a shift of the funds from the
banking system to real estate or stock market.
3. Difficulty in Deposit Mobilization:
In the last couple of years, deposit mobilization is a serious problem of the banks.
Because of the decreasing interest rates and the With-holding tax effect, people are
reluctant to provide deposits to the banks.
4. Limited Micro finance facilities to small farmers:
In Pakistan, micro finance is ignored by the banks. There are only few micro finance
banks which are trying to cater the needs of the small farmers but their presence and
activities are insignificant as compared to the rural structure of our country.
5. Higher rates on Consumer Finance:
In Pakistan, the profit rates on different products of consumer finance are higher, which if
brought downward can greatly enhance the living standards of our country.
6. Non diversification of advances:
In Pakistan the banks are reluctant to provide financing facilities to SME, Agriculture,
Sole Proprietors and consumers. There major focus is on the Corporate segment while
there is little focus of consumption loans.
7. Excess Competition:
In Pakistan the banks are guided by the bottom line consideration which can result in
excess competition. This too much competition can have serious problems for the
economy as the banks can violate AML/CFT laws for deposit generation and also can
increase the inflation rate by indulging in too much Consumer financing, by taking
excessive risk with the depositors money.
The above discussed weakness can have the following consequences:
1. Because of the non-availability of the banking facilities to far off areas the economic
activities of those areas are not included in the documented economy of our country.

Hence a large portion of the economic activities are not included in the GDP of our
2. Decreasing profit rates are forcing the people to move away from the banking sector
and as a result the underground economy is increasing which can have serious effects
on the overall health of the economy.
3. Because of the implementation of the WHT on bank transactions, the people are
moving away from the banking system. The informal economy has increased in its
size as the majority of the transactions are cash based. Furthermore, the classification
of the tax payers into FILERS and NON-FILERS category has further increased the
numbers of non-filers as the government has institutionalized the non-filing of tax
returns which in the end has increased the number of people who conceal their true
sources of income and funds.
4. In Pakistan majority of our population is rural and their major source of income is
agriculture. The non-inclusion of thios