After the recent Habib Bank Limited (HBL) saga and National Bank of Pakistan (NBP) Bangladesh scam, the need for prudent bankers could not be over emphasized. There was a time when stalwarts like Agha Hassan Abdi, Shaukat Tareen, Zakir Mehmood, Ishrat Hussain dominated the banking industry. While such names are rare to find these days, still Pakistan could boast of producing good bankers that are not only serving domestically but are also proving their mettle in Gulf Cooperation Council countries. A host of bankers hailing from Pakistan are already serving in the higher management of banks in Kingdom of Saudi Arabia as well as financial regulatory authorities like Saudi Arabia Monetary Authority, Central Bank of United Arab Emirates etc.
Banks in Pakistan account for 95 percent of the financial sector and hence good health of banks is directly related to economic growth and development of Pakistan. Prior to 1990s, banking sector was marred by factors such as high administrative costs, burden of stuck up loans and excessive tax and interest rates. Banking sector reforms were thus badly needed. The professional bankers at that time along with the government took certain steps that transformed the banking industry. Some of the reforms are as under:
- Privatization of Nationalized Commercial Banks
- Corporate Governance
- Capital strengthening
- Improving asset quality
- Liberalizing foreign exchange
- Consumer financing
- Mortgage financing
- Legal reforms
- Prudential regulations
- Micro/SME/Agriculture financing
- Islamic Banking
- Setting up of credit rating agencies
- Improvement in payment systems
- Revival of sick industrial units
It was because of these reforms that financial discipline, competition and improved internal efficiency was inculcated in the industry as a result of which we are witnessing banking industry in its present state. In fact, Pakistan withstood global financial meltdown and sub-prime mortgage crisis in 2008 because of these reforms. But as the old adage goes “To err is human” or “Power corrupts and absolute power corrupts absolutely”, same is true for present day bankers. Recently, a lot of insider trading and fraud/forgery cases are being reported primarily because of conflict of self-interest with risk appetite of banks.
Banks are financial institutions that fuel economic growth in a country. People place their trust while depositing their savings with them. When one bank falters, it not only shakes the customers’ confidence but may also trigger “domino effect” which may result in the collapse of the financial system. On one hand, there is the issue of reputational loss for the banks whereas on the other hand, the penalties imposed by foreign regulators may have foreign exchange ramifications for the country. This has come at a time when both exports and remittances are under pressure.
Talking of remittances, there is still a huge amount of money being transacted through unorganized and illegal channels (Hundi/Hawala). Some estimates suggest that the Hawala/Hundi market is at least equal to the formal channel. The recent HBL-Bank Al Rajhi debacle has once again sparked the “de-risking” debate where banks have started to critically review their internal controls and compliance functions with respect to Anti-Money Laundering/Know Your Customer/Countering financing of terrorism. It is heartening to see that the apex regulatorhas launched a crackdown for quashing illegal money transfers and the banks are following suit. Road shows by United Bank Limited and launch of documentary-drama by National Bank of Pakistan are some of the recent examples.
At present, banking industry is gripped with an air of fear where officials are afraid to take even a correct decision. The bottom line of banks’ financial statements is likely to take a hit this year. Some conspiracy theorists have even started echoing rumors like BCCI scandal and anti-CPEC sentiments. But it is not that nothing good is happening in the banking sector. Digital has become the buzz word for the industry. While Pakistan has not yet encountered issues such as security breaches and cyber warfare, bankers need to keep themselves abreast with the global developments in this regard.
Despite all this, it is encouraging to see that the banks have recently embarked on merit-based recruitment to build up their human resource base – an area which has been neglected so far. The private banks have taken lead in this respect by holding competitive examinations, interviews and selecting the most qualified candidates. The era of appointment based on nepotism has almost come to an end as the private owners want to attract and retain the best available talent, which can maximize their profits. This new generation of bankers will usher in a culture of professionalism and rigor in the banking industry and produce bankers of stature who will provide leadership in the future.