BANKING SYSTEM IN PAKISTAN
By ShuJAT ALI BAIG
Dec 13 - 19, 1999
In order to meet the challenge of financing Pakistani exports, the government established the National Bank of Pakistan in November 1949 ahead of schedule. Originally the NBP was to be established in 1950. Since Dhaka was occupying an important position those days because of jute which was on top of the exports list in the early days of Pakistan hence the first branch of NBP was established in Dhaka, the capital of the then East Pakistan. The NBP was founded as a public sector entity with 25 per cent of the paid up capital sponsored by the government of Pakistan. Both SBP and NBP performed well because the managements of these two banks was in the hands of the young professionals having rich experience of working in Reserve Bank of India and The Bank of India.
With the passage of time the number of Pakistani banks which were 4 in 1948 increased to 5 in 1955. The total number of branches of these banks took a quantum jump from 23 branches to 163 during that period yet the number of foreign banks however declined from 34 to 27 similarly their branches also registered a decline from 172 to only 88.
With the increase in number of banks and their branches the size of the bank deposits also rapidly increased by ten times i.e. from Rs19.3 million to Rs1919 million during the period of 1949-1953. Deriving strength from the performance of the banking sector, the government was encouraged to set up more development financial organizations which are now called DFIs. One of them is Industrial Finance Corporation which was set up in 1949, another development financial institution was Agriculture Development Bank of Pakistan which came into being in 1952 and another institution namely Zarai Taraqiati Bank of Pakistan was set up in 1961. However the two banks of agriculture sector were merged into a single entity under the title of Agricultural Development Bank in 1961 while Pakistan Industrial Finance Corporation was converted into Industrial Development Bank of Pakistan in the same year. Pakistan Industrial Credit and Investment Corporation (PICIC) was another important financial institution which was set up in collaboration with the World Bank and financial and technical assistance from the United States of America. World Bank and International Finance Corporation (IFC) have some stakes in PICIC while the US, Germany and Japan are also among the shareholders of this financial institution.
The 60s decade is stated as the golden era of Pakistan's economic and financial development. The banking sector also registered noticeable growth during that period and lent a strong helping hand to the government to achieve rapid economic growth of the country. The Bank of Bahawalpur which comparatively a smaller bank also increased its area of operations by becoming a subsidiary of the National Bank of Pakistan in 1965. Among other contemporary banks, the United Bank Ltd was established in 1959 by Agha Hasan Abedi which also earned a prominent place of itself in the banking sector of the country. Other banks also which appeared in the banking sector were include Commerce Bank Ltd, Standard Bank Ltd, Union Bank , Premier bank, Eastern Merchantile Bank and Eastern Banking Corporation. The last two banks were set up exclusively for the then East Pakistan with headquarters in Dhaka. The Australasia Bank which was earlier operating on a limited scale in the Province of Punjab widened its operations at the national level and started working in both wings of the country that East and West Pakistan was an interesting development in the banking history of this country. M.A.Yousafi was appointed as the new Chief Executive of Australasia Bank who decided to shift the head office of the bank from Lahore to Karachi so that the bank would work in close association with the State Bank of Pakistan situated in Karachi. The Muslim Commercial Bank however worked relatively at a slow pace, strictly on the principles of prudential banking as it was headed by a Chief Executive, who was traditionally a conservative British national.
Mustufa Ismail, a thorough professional however took over the charge of MCB in 60s. He was a balanced man neither too prudent like earlier chief executive nor extra-ordinarily dashing like Agha Hasan Abedi. Mustafa Ismail with his strong professional approach soon put MCB on number three position in the country after Habib Bank and the National Bank of Pakistan, while the Habib Bank was on top of the list in commercial banking while on second position after National Bank of Pakistan.
Pakistani banks registered a marvellous growth in 60s decade while Indian banks left with no more interest in Pakistan gradually disappeared from the scene by closing down their business operations in Pakistan. At that time various UK banks merged their business into Grindlays Bank which is now called ANZ Grindlays. However in 1948 various foreign banks started their operations including ABN AMRO, and American Express Bank. Another foreign bank i.e. Bank of America came to Pakistan in 1961, and another German bank Europe Asian which is now called Deutsche Bank came in 1962, bank of Tokyo in 1963 and Indosuez, a French bank also started banking business in 1979. Despite mush rooming of the foreign banks their share was not more than 10-11 per cent in the banking business of Pakistan.