Banking Sector

in Pakistan

Banking Sector in Pakistan 1

What is Bank?

“A bank is a financial institution licensed to receive

deposits and make loans.”
• Banks may also provide financial services , such as
wealth management , currency exchange and safe deposit
boxes.
(www.investopedia.com)

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Central Bank
 Supervisor of banking and monetary system

 Hold total amount of currency and credit

 Monopoly of note issue

 Act as a adviser to the government in monetary matters

• Central Bank of Pakistan “ State Bank of Pakistan”

• Central Bank of India “ Reserve Bank of India “

• Central Bank of England “ Bank of England”

• Central Bank of U.S.A “ Federal Reserve System”

Banking Sector in Pakistan 3

State Bank of Pakistan
History
• Before independence, Reserve bank of India was the central bank of for
both Pakistan and India.

• On 30th December , 1948 British govt. commission distributed reserves

between both countries with 70%: 30 % ratio.

• In May, 1948 M. Ali Jinnah took steps to established SBP.

• The idea were implemented in June 1948.

• SBP commenced operation on July 1 , 1948.

• A large rules and regulations introduced in 1956

( www.sbp.org.pk ).
Banking Sector in Pakistan 4
State Bank of Pakistan

‫ت پا ِکستان‬
ِ ‫بینک دَول‬

Established July 1st, 1948

Headquarters Karachi , Pakistan

Governor Tariq Bajwa (Since 7 July 2017 – 3rd May, 2019
New Governor Reza Baqir ( appointed on 05th May 2019)
Currency Pakistani rupee PKR ( ISO 4217)

( www.sbp.org.pk )

Banking Sector in Pakistan 5

Constitution of state Bank of Pakistan

The National Assembly increased the powers through its acts;

• State Bank of Pakistan Act , 1956.

• Banking Companies Ordinance , 1962
• Banks Nationalization Act, 1972

Banking Sector in Pakistan 6

 Departments of State Bank of Pakistan
• Banking Inspection Department (BID)
• Agricultural Credit Department (ACD)
• Banking Supervision Department
• Economic Policy Department
• Exchange & Debt Management Department
• Islamic Banking Department
• Corporate & Media Affairs Department
• Research Department
• Audit Department
• Accounts department
• Information System Department
• HR Department
Banking Sector in Pakistan 7
Function of State Bank of Pakistan

The state bank of Pakistan performs both the traditional

and developmental functions to achieve macro economic
goals.

( www.sbp.org.pk )
Banking Sector in Pakistan 8
Function of State Bank of Pakistan

Primary function

• Issue of notes
• Banker’s Bank
• Banker to the Government
• Conduct of monetary policy
• Lender of the last Resort
• Regulation & supervision of financial system
( www.sbp.org.pk )

Banking Sector in Pakistan 9

Function of State Bank of Pakistan

Secondary Functions

• Management of public debit

• Management of foreign exchange
• Advisor to the government
• Relationship with international Financial institutions

( www.sbp.org.pk )
Banking Sector in Pakistan 10
Function of State Bank of Pakistan

Non-Traditional or Promotional Functions

• Development of financial institutions

• Training facilities to banker
• Development of specialized institution

( www.sbp.org.pk )

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Introduction To Banking Sector In Pakistan
Banking sector in Pakistan possesses a wide spectrum of financial

institutions.
• Central Bank
• Commercial Banks
• Specialized Banks
• Development Finance Institutions (DFIs)
• Leasing Companies
• Micro-finance institutions (MFIs)
• Non-banking financial Companies (NBFCs)
• Islamic banks.
• Mutual Funds Insurance Companies

Banking Sector in Pakistan 12

 Commercial Bank

“ A commercial bank is a type of financial institution that accepts

deposits , offers checking account services, make various loans
and offers basic financial products like certificates of deposit
and savings accounts to individuals and small businesses.”

• A Commercial bank is where most people do their banking ,

as opposed to an investment bank.

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 Commercial Banks in Pakistan
• National Bank of Pakistan( NBP)
• Bank Al falah
• Standard Charted
• Habib Bank
• United Bank Limited (UBL)
• Meezan Bank
• Allied Bank
• Askari Bank
• Muslim Commercial Bank (MCB)
• Faysal Bank
• Silk Bank Limited
• Soneri Bank Limited
• Summit Bank Limited
• Albarka Bank Pakistan Limited

(https://corporatefinanceinstitute.com)

Banking Sector in Pakistan 14

 Role Of Commercial Banks

• Mobility of Capital
• Create Instruments of Credit
• Role in Export and Import Activity
• Easy and simple Transfer Money
• Encourage Trade and Commerce

Banking Sector in Pakistan 15

Differences Between Central
& Commercial Bank

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Challenges faced by commercial banks

Political
instability

Economic
uncertainty

Banking Sector in Pakistan 17

• The total assets of banks in2016 was 15.83 trillion.
• Pakistan banking system remain sound and stable in 2017
with total assets 18.34 trillion.
• Pakistan’s banking sector profitability declined by three
percent to 39 billion in 2018 due to increased expenses
incurred by big banks on pension and compliance cost .

Banking Sector in Pakistan 18

Challenges Faced by Commercial Banks

• Service to customers
• Regulatory challenge
• Consumer banking
• Challenge to new banks in private sector.

Banking Sector in Pakistan 19

Nationalization of Banks

‘’Is the process of bringing the assets of company or bank

into the ownership of the state”

The Government of Pakistan nationalized all the Pakistani

banks on June, 1974. The ownership, management and control of
these banks stood transferred to and vested in the Federal
Government. Some smaller banks merged with larger ones.
Consequently their remained only five banks,

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1:National bank of pakistan.
2:Habib bank limited.
3:United bank limited.
4:Muslim commercial bank.
5:Allied bank of pakistan.

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Reasons of Nationalization

• Concentration of wealth
• Non availability of small loans
• Security of deposit
• Wrong sectorial distribution of credit
• Speculative business
• Financing of agriculture

Banking Sector in Pakistan 22

1:Concentration of wealth

The private sector aggravating the problem of concentration of

wealth in few hands.so only 22 families were possessing the most
major part of country’s wealth. These families were controlling
80% of total assets of the commercial banks and 90% of insurance
business.

Banking Sector in Pakistan 23

2:Non availability of small loans:
Private banks discouraged small loans. they accommodated and
obligated only the big industries and businessmen. thus Mal-
Distribution of funds was creating monopolies.

3:Security of deposit :
Due to nationalization people got more confidence in the banks
and security of deposit.

Banking Sector in Pakistan 24

5:Wrong distribution of credit:
Because of profit motive ,the private banks advanced more loans
to trade and commerce instead of industry ,private sector s favored
short term loans, which were suitable for business .
6:Speculative business:
Banks were supporting speculative activities and made easy
availability of bank credit for this purpose , thus the prices were
artificially raised .

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7:Financing of agriculture
The commercial banks paid almost no attention to agriculture ,
although this is very important sector of our economy , after
nationalization , the trend changed and the banks allocated
enough funds for agriculture sector.

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 Nationalization of banks
• Advantages
• Equal distribution of wealth
• End of monopoly
• Check on smuggling and
hoarding
• Economic stability
• Effective planning
• Price stability
• Increase in social welfare
Banking Sector in Pakistan
• Disadvantages
• Increase in corruption
• Fall in production
• Private sector discouraged
• Public sector over weighted
• Carelessness of labor
https//bohatala.com
27
Privatization of Banks

“Is the process of denationalization of an industry ,transferring

from public to private ownership’’.

The start of the privatization process was done through the two
state owned bank Muslim commercial bank limited and Allied
bank of pakistan in 1991

Banking Sector in Pakistan 28

Reasons of privatization of Banks
As the time passed the nationalized banks develop many defects
and their performance become unsatisfactory. The most important
cause of poor performance of banks was political interference. This
had resulted in:
• Over staffing
• Loans advanced under political pressure to non deserving
parties without proper security.
• Poor recovery of loans ,inability to deal with defaulters.

Banking Sector in Pakistan 29

Arguments for privatization

• Nationalized industries are in efficient due to lack of

competition, competition means efficiency improves.
• Competition leads to more choice for customers.
• Companies owned and run by people for the people.
• Better quality

.
https//bohatala.com

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