ECONOMIC ATTRIBUTS OF BANKING SECTOR

Banking in Pakistan first formally started in Pakistan during the period of British colonialism in the South Asia. After independence from British Raj in 1947, and the emergence of Pakistan as a country in the globe, the scope of banking in Pakistan has been increasing and expanding continuously. Pakistan's oldest bank is the State Bank of Pakistan, which is also the central bank of the nation. Before independence on August 14, 1947, the Reserve Bank of Indiawas the central bank of what is now Pakistan. After independence, Muhammad Ali Jinnah took actions to establish a central bank of Pakistan in 1948 which resulted in the new founding of the State bank of Pakistan, with its headquarters to be based in Karachi. The role of domestic banks was particularly limited at the time, accounting for only 25 of the total 195 bank branches in the country. Therefore, the SBP was initially mandated to develop commercial banking channels, and maintain monetary stability so trade and commerce could flourish in the newly-created state. Subsequently, Habib Bank, Allied Bank and National Bank were amongst the first to start operations with strong support from the central bank. Nationalisation 1970 1980 Commercial banking grew favourably in Pakistan until 1974. Under the nationalisation policy implemented by Zulfikar Ali Bhuttos government, thirteen banks were brought under full government control, and consolidated into six nationalised banks. Privatization, 1990 1997 By 1991, the Bank Nationalisation Act was amended, and 23 banks were established of which ten were domestically licensed. Muslim Commercial Bank was privatised in 1991 and the majority ownership of Allied Bank was transferred to its management by 1993. By 1997, there were still four major state-owned banks, but they now faced competition from 21 domestic banks and 27 foreign banks. Banking in pakistan In the absence of sustainable economic growth, banks will remain vulnerable to business cycle fluctuations. As recently as 2008, non-performing loans increased sharply in response to the preceding years of easy credit and risky consumer lending practices. Moreover, strong regulation will continue to be required so as to maintain the delicate balance between industry concentration and competition. Presently, the top five banks account for about 50% of the sector, measured in terms of total advances. the benefits of financial liberalisation must trickle down to the common man. Banks are proactively exploring new business models to make this happen such as branchless banking.

But more headway needs to be made before existing deployments such as Tameer Banks Easypaisa or UBL Omni reach a critical mass of users. Reforms have helped banks come a long way, but unless the central bank remains autonomous. (History of Banking in Pakistan, Nov 2001)