The banking sector in Pakistan has gone through its
all thick and thin. It survived nationalisation, de-nationalisation,
privatisation, sanctions and restrictions unseen elsewhere in the
history of the world (especially the freezing of foreign currency
accounts in 1998 following our nuclear adventures), mergers,
takeovers, re-structuring, and every other imaginable metamorphosis.
However, the industry has been slowly but surely
rising out of the mire and is apparently heading towards the financial
heavens since the turn of the new century. Some of the factors
attributed to this turnaround in fortunes have been the policies and
reforms introduced by the country's central bank, the State Bank of
Pakistan. Analysts also attribute the contemporary positive outlook to
enhanced banking services such as consumer banking and easier access
to soft loans.
Let us delve into some of the facts and issues
pertaining to these commercial institutions with a fine toothed comb
and attempt to foresee their role in economic development in Pakistan
in the future. We will look at the shift in the fundamental concepts
in Pakistan's commercial banking sector.
ROLE IN ECONOMIC DEVELOPMENT
Commercial banks in Pakistan can be classified into
the following broad categories: Nationalized Commercial Banks,
Privatized Banks, Specialised Scheduled Banks, Private Scheduled
Banks, Provincial Banks, Development Financial Institutions,
Investment Banks, Micro Credit Institutions and Foreign Banks, besides
a handful of uncontrolled banks.
Although the number of operating banks in Pakistan
was astonishingly low until the mid-1980s and early 1990s, relentless
economic focus on the part of successive governments compelled
international banks to consider the Pakistani marketplace with its
emerging players and demands; and those who did invest at the right
time are reaping the benefits of the presently booming economic
The banking sector and its support to the
government and its policies have been instrumental in the historic
growth of the country's GDP, which stands at an all time high
according to recently released figures.
One example of this is the news item carried in
sections of the local press revealing that local and foreign banks
operating in Pakistan collectively mobilised over Rs.327 billion in 11
months of the current fiscal year owing primarily to the increased
economic activity in the wake of higher-than-projected growth in the
In the process, these banks also managed to expand
their deposit base thanks mainly to foreign exchange remittances from
overseas Pakistanis (US$3.81 billion between July 2004 and May 2005).
This helped to create deposits of approximately Rs.227 billion at an
average exchange rate of Rs.59.50 per dollar. The total collective
deposits of banks summed up to Rs.2320 billion around the end of May,
The banking sector, according to financial gurus,
has directed its investment towards more productive private sector
advances providing a much needed impetus to export-oriented
production. They have also been the front line of defence against
erosion of capital base from losses. In the circumstances, the need
for high earnings and profitability cannot be overemphasized, and with
cut-throat competition in the marketplace, banks are compelled to take
drastic measures to keep afloat.
Financial sector reforms in the last five years
have resulted in positive outcome for the industry as a whole and as a
result, ongoing developments are encouraging. The consumer has
countless financial options today and all banks have directed their
focus on small consumers as much as they have towards the corporate
sector and industrial investment.
Since consumers are now more aware of what banks
can provide to their customers internationally, public trends are
rapidly being reshaped and redefined. The modern-day consumer demands
more than just deposits and receipts, and is quite willing to pay for
services that one acquires from these institutions.
Given below are some of the emerging trends in the
Pakistan government is making all possible efforts to ensure swift and
smooth privatization of Nationalised Commercial Banks. This is being
carried out via a two-tier strategy; i) sale of the remaining
government shares in already privatized banks, and ii) the sale of
majority shares and management transfer of the remaining Nationalised
In the recent past, Muslim Commercial Bank has been
the industry benchmark becoming the largest bank in Pakistan with the
most extensive network coverage of ATMs. This has prompted other
players in the game to catch up the tempo and compete with MCB on
their turf. Subsequently, it is the consumer who benefits from the
increased efficiency and service capacity of financial institutions.
Other banks including United Bank Limited, First
Women's Bank Limited, Habib Bank Limited and Allied Bank have also
been given the autonomous status and are competing reasonably well in
the private sector with increased management support and interest,
playing a critical role in elevating their standing as well as
The privatisation process was initiated in early
90s with the denationalisation of Muslim Commercial Bank (MCB) and
Allied Bank of Pakistan (ABL) and the establishment of numerous banks
in the private sector.
movers and shakers allude to a general shift in paradigm recently as
private banks are consolidating their position by increasing their
paid-up capital and expanding branch network. Increasing the paid-up
capital to Rs.1 billion is a pre-condition set by the State Bank for
all commercial scheduled banks.
Another dynamic is the fact that until recently
most banks had limited presence across the country, especially in
rural areas. On the contrary, most banks today have branches in small
towns, suburbs and villages to provide convenient service to
under-developed and under-privileged areas and territories.
The above mentioned and similar financial sector
reforms have brought the Pakistani economy, particularly the banking
sector, under the spotlight of international money managers and
Foreign Direct Investment (FDI) has started flowing into this economic
NEW TRENDY LOOK
It has been a source of concern for several
financial wizards that banks in Pakistan follow an orthodox and
conservative approach. This may be true to a great extent, especially
when one considers what banks have had to go through in the short
history of the country. After all, the foremost interest of the banks
should be to safeguard the interests of the shareholders.
On the other hand, there is but a thin line between
the orthodox and the modern approach to commercial banking since the
evolution of banks has not totally transformed the way they handle day
to day business activity. The managerial hierarchy and setup for
instance have remained more or less unchanged in a century or more.
Although most banks have clearly displayed the
urgency to upgrade and create a fresh image among the general public,
most have not fully succeeded in reaching their pot at the end of the
rainbow. For instance, Muslim Commercial Bank, Allied Bank of Pakistan
and United Bank Limited have developed aesthetically pleasing
corporate identities, yet only the former has broken through on a
Nonetheless, the ambience inside a bank has
certainly transformed from the medieval-looking to the ergonomic and
chic and even the personnel behind the counters are generally more
educated and respectful when dealing with clients today. Gone are the
days of the starched Shalwar-Kameez wearing managers, the measly
mustached counter clerk and dacoit-like bearded security guards.
Everyone seems to be formally dressed for success these days.
On the whole, the economic, social and moral trends
across the banking industry are positive and one can optimistically
anticipate that the best is yet to come.
CONSUMER BANKING WITH VALUE-ADDED SERVICES
The introduction of foreign banks in the country in
the 90s saw a major shift in banking practices across urban Pakistan
and the introduction of services that are aimed at targeting corporate
clients as much as they intend to appeal to the majority middle and
lower middle classes, which make up a vast majority of the population
In a country where hard, cold cash or cheques still
seem to be the preferred choice with most businesses and individuals,
the introduction of credit cards, debit cards, ATMs and other
facilities and services has ushered a new era in banking in Pakistan.
It has become rather common for people to line up outside ATMs after
banking hours, although it reminds one of the good old days when we
queued up inside the banks during business hours.
Most eateries and supermarkets around commercial
centres now accept plastic money while ATMs of almost all major banks
are conveniently located throughout urban centres, and accepted for
undersized payments at selected outlets. However, a greater chunk of
the population (especially the rural lower-middle class) still has
little knowledge of or access to these services.
Loans are easier to get today than they have ever
been for the common citizen. In the past, with only nationalised banks
providing the facility, few loans ever got sanctioned when the
applicant was not an influential big-wig. As a result of the practice,
the bad debt situation also worsened, and the ruthless untouchables
accumulated wealth fearlessly.
However, the sands of time have brought about this
once impossible dream in easy reach. Almost all banks are now offering
loans on every conceivable pretext- house loans, auto loans, business
loans, personal loans and a bundle more on softer terms to less
financially sound people with minimum guarantees. While this may ease
some burdens in the short-term, the long-term consequences are yet to
With people thronging to get loans, analysts fear
that the rising inflation may leave more than half the population
(especially the salaried class) unable to repay their debts in the
next few years. In spite of this, banks can only stand to profit from
the situation regardless of the status of the street economy.
Most corporations and institutions today emphasise
the need for improved customer relations in order to boost sales and
develop a client base that looks good on paper. Although international
standards are prevalent in most areas of the sector, there have been
innumerable reports of mishandlings and misbehaviour on the part of
customer relations managers and their assistants. After all, even
foreign banks hire locals to run their businesses here, and attitudes
cannot be internationalised.
Al-Meezan Investment Bank was the pioneer in
commercial banking activities on the basis of Riba-free transactions
and has prompted banks and bankers around the world to look into this
alien concept to enhance productivity and profitability. Although Riba-free
banking is a concept as old as the religion itself, it has not really
been tested to the fullest until recently.
Banks engaging in Islamic banking are optimistic of
success and are already posting positive results contrary to popular
STATE BANK OF PAKISTAN
The country's central bank is the exclusive
authority that supervises, monitors and regulates all financial
institutions across the country. It is also responsible for
safeguarding the interest of depositors and shareholders of banks and
other financial institutions. More importantly, the SBP has earned the
respect of all banks and managements owing to its business-friendly
initiatives and policies.
In the last decade or so, the SBP has withstood
immense pressures emanating from a stagnant economy, international
sanctions, negative economic indicators, and shrinking public
confidence, and has been instrumental in pulling the reigns of the
country's financial sector and implementing its policies.
Let us look at some of the leading banks in
Pakistan to get a clearer picture of the present status of the banking
sector and how things could shape up in the not too distant future.
MUSLIM COMMERCIAL BANK
The first bank to be de-nationalised, MCB, is the
largest private sector bank in Pakistan with the most extensive
country-wide network of branches and ATMs have been the benchmark for
the industry lately. MCB currently boasts over 900 branches (with 750
of these being automated), over 200 ATMs and more than a dozen banks
on the MNET ATM switch. MCB has been declared the best bank in
Pakistan by Euromoney for four out of the last five years, and several
other reliable, independent international organisations have expressed
similar views about the bank.
MCB offers a wide range of financial products and
services to its mushrooming number of corporate and individual
customers including private placements, debt/equity underwriting, term
finance certificates, loan syndication, privatisation, corporate
advisory, non-fund facilities, and mergers and acquisitions. The bank
has been outstanding in its performance and has posted significant
profits in the current fiscal.
NATIONAL BANK OF PAKISTAN
NBP is determined to set higher standards of
achievements, being the sole remaining nationalised bank. It is a
major business partner of the Government of Pakistan and has
contributed significantly to the country's economic growth through
forceful yet objective lending policies, technology-oriented products
and services, and a large network of branches locally and
HABIB BANK LIMITED
Established in August 1941 with the opening of its
first branch in Bombay, it moved to Pakistan as the premier financial
institution long before independence. HBL is an internationally
renowned name and has 1700 branches in Pakistan and more branches in
26 countries across five continents.
Presently, the bank is running on modern lines and
provides its customers with all contemporary services including credit
cards, ATM cards and travellers' cheques. HBL has also quoted good
pre-tax and pre-audit results for the current fiscal year.
UNITED BANK LIMITED
UBL is one of the largest commercial banks in
Pakistan with nearly forty six years of exemplary service to its
customer base. Its present assets base is over Rs.300 billion. UBL has
over a thousand branches locally and 15 overseas branches, making it a
truly global institution.
ALLIED BANK LIMITED
Like most of its counterparts, ABL has also posted
good gains in the current fiscal according to its un-audited balance
sheet. With a new corporate identity and over 850 branches nationwide,
ABL could well be the next big thing if its management can get it
ASKARI COMMERCIAL BANK
Incorporated in 1991, ACB started operations the
following year and is presently among the top choices for the
contemporary customer. ACB is an active scrip on the Karachi, Lahore
and Islamabad Stock Exchanges and has reportedly been over-subscribed
at least 16 times. The bank has over 50 branches across the country
and a reasonable ATM network. It's total assets exceed Rs.85 billion
and has been considered among the best performing financial
institutions in Pakistan.
Moreover, ACB is apparently the first Pakistani
bank to offer real-time, on-line banking across the country, the first
to offer Internet Banking services, and the first bank to offer
Active in Pakistan since 1997 and managed by UAE-based
financial tycoons, the Abu Dhabi Group, Bank Al-Falah has over 100
branches across 36 cities of Pakistan. The bank has invested in
revolutionary technology to provide its customers with an extensive
range of products and services. The bank has also taken a quantum leap
in the last few years and is reported to be in the fine financial
FIRST WOMEN'S BANK
FWBL was incorporated in 1989 for the sole purpose
of providing banking facilities to women to empower them to lead and
be part of the economic machinery. The bank was privatised a few years
ago and has since been doing exceptionally well. It posted encouraging
results in the last few years and the present expectations are