Oct 13 - 19, 2008

Shaukat Tarin, a renowned banker, who is now commanding the financial regime as the advisor to Prime Minister on Finance, Revenue and Economic Affairs with the status of Federal Minister has the capacity to effectively tackle the current financial turmoil currently faced by the country..

Political circles strongly believe that the new finance minister would also be accorded a position of the senator to move as a full-fledged Federal Finance minister in near future.

The key economic stakeholders including the capital market, trade and industry and of course the banking circles have also facilitated his appointment as finance minister with the hope that he would be able to steer out the economy from the persistent economic and financial turmoil.

In fact, the global shocks and domestic economic slowdown call for some radical steps which could only be initiated by the experts in finance and economics; hence there seems need for induction of some economists for putting the distracted economy back on the track.

It is interesting to recall that the ministry of finance after taking over the charge by the present government has seen some quick and interesting developments as during the short span of time the ministry saw Ishaq Dar and Naveed Qamar as the finance minister. It however seems that reign of the finance ministry is now in the right hands as Shaukat Tarian on the back of his wide exposure having enjoyed the key positions as the former chairman Karachi Stock Exchange, President of Citibank, HBL, Union Bank and Saudi-Pak Commercial Bank to his distinguished career and has the capacity to deliver what the nation expects from him.

The immediate challenges faced by the economy and the masses of the country are including all time high inflation which accelerated at the fasted pace on the back of global shocks of all time high food prices, again the all time depreciation of Pakistan currency which is having a killing effect on the highly poor per capita income of the people and the alarming erosion in buying power. The financial regime is threatened by widening current account deficit, fast depleting foreign exchange reserves and the downgrading of country's sovereign credit rating by the international agencies including Moody's & Standard and Poor's.

All these challenges faced by the financial regime of the country demand for strong and expert hands to get the economy out of troubled waters and to have good equation with international donor agencies besides saving the economy from being falling into the debt trap once again.


Soon after assuming the responsibilities the finance minister Shaukat Tarin has taken the nation into confidence that the banking sector is quite resilient in Pakistan hence there is no possibility of freezing the foreign currency accounts or takeover of the bank lockers. He brushed aside the general apprehension in a firm tone.

Actually such an impression was being created among the general public in the wake of rumors being spread by some quarters of vested interest that the foreign currency accounts are likely to be frozen.

Pakistan's banking sector is quite resilient and has been and will be able to withstand different types of market shocks and adverse macro economic conditions, said Dr. Shamshad Akhtar, Governor State Bank of Pakistan. This capability has been achieved through continuous financial reform process distinctively pursued during the past few years. There should not be any cause for concern about the stability of the banking system in the coming days, she added.

The banking system shows strong performance and holds a promising outlook, the investors maintained their confidence in the banking system and injected additional capital of around $500 million since 2006 that coupled with retained earnings improved the capital base of the banks. The banking sector has strong capital adequacy well above the minimum requirement. The capital adequacy ratio of the system is 12.1% as of June 08 that is well above the international benchmark. The nonperforming loans ratio and the ratio of non-performing loans to capital are also quite low and within acceptable ranges. "The infection ratio (net) in June 2008 has improved to 1.1% from 1.6 % in Dec-2006, signifying that the banks set aside more reserves out of their earnings to cover the increase in non-performing loans. Accordingly, the NPL coverage and capital impairment ratios have also improved", the SBP Governor added.

Pakistani banks largely focus on conventional lending and are not exposed to sub prime credit instruments in the international market. The lending and investments of the banks are subject to the stringent prudential regulations of SBP that prohibit the banks from clean lending and investment in low quality assets. Further, the banks are required to recognize the loan losses and provide for these losses in line with the established best practices. State Bank of Pakistan through its on-site inspection and off-site supervision wings keeps a close watch on the state of each bank as well as the banking system in entirety for any risk to the stability of the banking system.

In 2007, SBP made loan provisioning requirements more stringent in order to create adequate cushions to withstand any potential credit adversity. Stress testing analysis of the system suggests that the system is capable to withstand variety of plausible shocks in major risk factors without losing its solvency.

The banking system has been showing steady growth, satisfactory operating performance, strong resilience towards major risk factors, and efficiency reflecting upon the strong fundamentals that the system has developed during financial sector's reform process. Even in the face of adverse factors arising out of macro environmental factors, the performance of the banking system on the key financial indicators continues to be reassuring.