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The banking history

  1. ...Ever increasing oil prices
  2. Action plan for debt servicing
  3. The new privatization policy
  4. Intel's record revenue growth
  5. The banking system
  6. Tax evasion

Foreign banks have the advantage of less administrative cost due to limited staff

By SHUJAT ALI BEG
Feb 21 - 27, 2000

There are strong feelings among the people that local investors be given preference as compared to the foreigners willing to buy the financial institutions through the Privatization Commission.

During 90s the second French bank Societe Generale was established in Pakistan. This is the largest private sector bank of France. After that another major foreign bank i.e. Faisal Bank of Bahrain also set up its branch in Pakistan. Since Pakistan already has a large number of foreign banks operating in Pakistan, it may not be feasible to allow more foreign banks either directly or through privatization of local banks. The foreign banks have already strengthened spread their operations on much solid grounds in Pakistan due to various reasons such as they do not have to face political pressures for undue advances and loans. Comparatively having restricted branches and lesser number, customers from selected class of the society yet the size of their deposits and loans relatively are much larger as compared to Pakistani banks. They also have the advantage of less administrative cost due to limited staff. Since these banks pay handsomely to their staff best quality of highly educated and groomed manpower is available to them. However as a part of their business strategy they also encourage appointments of the persons from well off and influential families and some appointments in their banks even on the recommendations of political leaders of the opposition. They follow this policy as a sort of their insurance, investment and public relation policies so that they could carry out their business operations without any hurdles from any quarter whether a political government or martial law rule in Pakistan.

While the foreign banks operating in Pakistan have carved their place in the market on account of better marketing approach performance which have given them an edge over Pakistani banks. On the other hand weaknesses in the working and bottlenecks in the system, Pakistani banks have lost their market share to the foreign banks. While Pakistani banks are losing their share in banking business, the share of foreign banks is continue to increase. Foreign banks had a market share of around 10 per cent in 70s which has now gone up to 18-19 per cent. This situation sounds a note of warning that the share of foreign banks is likely to grab a lion's share out of market in the years to come specially in view of privatization programme of the government. And the sufferers of the situation would be the local banks.

In the current scenario, it is worth mentioning that responding to the financial policies of the government, various small banks were established in 1990s by the private sector in Pakistan. Currently they are ten in numbers which include Askari Bank, Bank AL-Habib, Prime Bank, Soneri Bank, Metropolitan Bank and Indus Bank. Among these small banks, Askari Bank has managed to attract larger deposits as compared to other contemporary small banks. During 1995 the size of the deposits of Askari Bank was around Rs9856 million as against the total deposits of the remaining banks estimated at Rs725869 million. Out of these 10 private sector banks, one of them has succeeded in opening more branches and is predictable to grow much more in future. At present the banking situation has once again repeating itself. i.e. it is returning to a situation where number of foreign banks is increasing, number of larger banks is stagnant and smaller banks are also increasing. This trend is likely to continue.

Habib Bank, the largest commercial bank in Pakistan which is on top of privatization agenda of the government has however gained tremendous financial results due to financial restructing in its operations. According to an assessment, HBL set to earn a profit of about Rs2 billion during the current financial year. It has also succeeded in overcoming the burden of non-performing loans as a result of its recovery drive which was supported by the new government. It may be recalled that at the end of 1996 the total stuck up loans of HBL were at Rs68 billion.B

—Concluded