Introduction of foreign banks in the 90s saw a major shift in banking practices across urban Pakistan

By Tajammul Hussain.
June 27 - July 03, 2005

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.


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 sector.

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 GDP.

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, 2005.

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 banking sector:

PRIVATIZATION: 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 Commercial Banks.

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 deposits.

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.

RESTRUCTURING: Industry 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 aorta.


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 large scale.

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.


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 of Pakistan.

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 be seen.

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 opinion.


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.


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.


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 internationally.


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.


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.


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 right.


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 e-Commerce solutions


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 health.


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 parallel.