New role of Central bank
Improving financial sector efficiency to ensure sound economy
As a link in the chain of their Management Development Programme for
Bankers, the Centre of Excellence Hamdard University organized a national level Seminar,
on 18th June 1999 at the Pearl Continental Hotel. The topic was "New Role of SBP
Supervision and Internal Audit in improving financial sector's efficiency and ensuring
soundness of Pakistan's Economy".
Mr. Mukhtar Nabi Qureshi, Deputy Governor State Bank of Pakistan,
inaugurated the Seminar which was attended by a good number of Presidents of Banks and
Financial Institutions and technical delegates comprising of Senior Executives from
Karachi, Lahore, Islamabad, and Hyderbad. Besides Mrs. Sadia Rashid, President, Hamdard
Foundation others present on the occasion were, Mr. Kaleem-ur-Rehman, President, Askari
Commerical Bank, Mr. Safar Ali Lakhani, President, Soneri Bank, Mr. Muneer Kamal,
President, Faysal Bank, Mrs. Tahira Mujeeb, ACTG President, First Women Bank Limited, Mr.
Zaigham Rizvi, Managing Director, Pak-Libya Holding Company and Mr. Paul Rusch, Chief
Executive, Societe Generale. The Seminar started with recitation of the Holy Quran by
Prof. M. Wali Khan Durrani. CEO, City Campus.
Welcoming the Chief Guest, Dr. Ahsan H. Khan, Executive Director Centre
of Excellence and Chairman Department of Banking, Hamdard University dwelt upon the role
played by Internal/ External Audit and Supervision by the State Bank of Pakistan in
improving quality and achieving excellence in performance. He eulogized the
policies/directives issued and practical measures adopted by the State Bank of Pakistan in
this connection especially after the autonomy given to the State Bank of Pakistan. This he
stated, has been instrumental in improving the health of the Banking and financial sector
of the country.
Mr. Mukhtar Nabi Qureshi, Deputy Governor replying to the welcome
address explained in detail as to what the country's Central Bank has .been doing towards
strengthening and revamping its supervision role and assigning new role to statutory
auditors and internal auditors of banks/NBFIs. He said that besides traditional functions
of regulating the monetary and credit system of the country, the State Bank of Pakistan
performs additionally, functions of bank supervision so as to ensure soundness of
financial system in the country. He dwelt upon the historical perspective since
independence and said that a review of the performance of banking sector in Pakistan was
conducted in 1972. It was noted that the banking system which was in private sector then
had registered an almost unparalleled rate of growth and achieved substantial
professionalization through effective training arrangements and other policy measures.
However, weaknesses and failures, were noted on the side of regulating credit,
concentration of credit, agglomeration of banking facility in urban areas, low level of
capital and reserve, accumulation of sizeable amount of bad debts etc. To improve the
situation a number of steps were initiated which included enhancing of capital base,
introduction of credit plan through national credit council, small loan scheme,
introduction of refinancing and subsidy schemes for newly emerging exports and setting up
of Credit Information Bureau to collect information about indebtedness of individual
parties. Due to nationalization of banks in the year 1974 the frame work was disturbed and
Central Bank's authority was diluted with the setting up of the Pakistan Banking Council,
deterioration of banking sector marked for bad lending. Exogenous pressure, corruption and
unhealthy practices flourished, The problem of infected portfolio assumed gigantic
In view of these developments a programme of Financial Sector Reforms
was initiated around l990s with the main objectives of good governance encouraging private
ownership of banks, accelerating privatization of banks, strengthening prudential
supervision and setting up market based monetary management. The post nationalization era
seriously suffered in respect of good governance. A process of laying down proper
framework was, therefore, initiated which included autonomy of the Central Bank,
formulation of Prudential Regulations and changes in Banks Nationalization Act, Banking
Companies Ordinance, State Bank of Pakistan Act and promulgation of new Recovery Law etc.
Deputy Governor informed the audience that to ensure efficacy and viability of the banking
system, proper attention was being paid to improve inspection skills and upgrading the
same in line with the modern banking trend. Besides systemic changes, policy framework as
also entire gamut of rules is being improved. For the purpose State Bank has hired the
services of an international consulting firm is in the process of setting up dealing room
to monitor market activities and intervene when found necessary. Debt management and
Securities wing is also being strengthened and upgraded. State Bank has also stressed upon
banks to strengthen the role of internal auditors and statutory auditors of banks so as to
ensure effectiveness of external and internal audit. Another important development relates
to revising old formats of financial statements in accordance with international
accounting standards. Yet another initiative taken pertains to changing capital
requirement in accordance with internationally accepted Basle Committee Capital formula
based on risk weighted assets. The new dispensation will strengthen capital base of banks.
To improve profitability of banks and increase rates of return on deposits, Banks have
been asked to reduce their financial intermediation cost. Finally necessary steps
including change in legal framework have been taken to ensure recovery of stuck up loans.
These include introduction of incentive schemes for repayment, setting up of Committee for
revival of industrial sick unit etc.
Concludingly Deputy Governor expressed his gratitude to the management
of Hamdard University for inviting him to address such an illustrious gathering and
expressed the hope that MBA courses offered by the Banking Department of Hamdard
University would go a long way in enriching the knowledge of students.
Eminent professionals like Mr. S. Masuod Ali Naqvi, FCA, Senior
Partner, Taseer Hadi & Co, Mr. Sirajuddin Aziz, Senior Executive Vice President &
Regional Chief Executive, Union Bank Limited, Mr. Khawaja Waheed Raza, Senior Executive
Vice President & Chief
Executive, Habib Bank Limited, Mr. Aameer Karachiwala, Chief of Staff,
United Bank Limited and Mr. Saleem Omar, World Bank Advisor on Bankers' Training addressed
the technical session, which comprised of VPs to EVPs of various banks and financial
institutions. Mr. Kaleem-ur-Rehman, President, Askari Commercial Bank Limited chaired the
morning session while the evening session was chaired by Mr. Muneer Kamal, President,
Faysal Bank. In the evening, certificates were distributed to the participants by Mr.
Kaleem-ur Rehman, Mr. Aameer Karachiwala, Mr. Khawaja Waheed Raza, Prof: M. Wali Khan
Durrani, Mr. Sirajuddin Aziz and Dr. Ahsan H. Khan.At the end, majority of the
participants rated the Seminar as EXCELLENT.