1 - 7, 2010

Need of security and protection led human to scientific and technological and financial sector developments.

In recent time, financial sector has witnessed a phenomenal growth. There were as many as 43 scheduled banks, 13 DFIs, 26 leasing companies, 12 investment banks, four housing finance companies and two discount and guarantee houses in Pakistan in 1995. The number of foreign banks as of June 1995 stood at 19 with 71 branches, which gave tough competition to Pakistani banks and thereby contributing in upgrading the standard of banking in the country. Their growth, performance, and professionalism have been indeed outstanding and commendable. Foreign banks reaped the great benefits from growing foreign trade market.

Foreign banks provide the same services commercial banks provide in the country. These banks play very vital role in maintaining foreign reserves and in the development of domestic trade. Some of the foreign banks working in Pakistan include Bank of America, Citi bank, Al-Baraka Islamic Bank, Standard Chartered bank, The Hongkong and Shanghai Banking Corporation Limited (HSBC), Oman International Bank, and American express.

Foreign banks would be permitted to increase their branches to 25 under commitments made by the government with the World Trade Organization (WTO).

As a member country of the WTO, Pakistan is bound to comply with certain derivative agreements of the organization. A major obligation assumed by Pakistan under the General Agreement on Trade and Tariff (GATT) is the provision of nondiscriminatory access to service suppliers of other countries to the Pakistani market.

Banking sector is a very important sector of any country. Only 10 years ago, the Pakistani banks were doing very poorly. Now the scenario has changed. After 1997, the banks observed a turnaround. In the fiscal year 2005-06, Pakistan observed a growth of 6.6%.

In order to increase productivity and quality of service, most of the banks of Pakistan are now being privatized. Standard Chartered, one of the largest banks of United Kingdom, bought majority stakes of Pakistan Union Bank. Standard Chartered makes 95% of its profits from Asia. In Pakistan, in 2005, it had a very good performance. It had forty-four branches in ten different cities in Pakistan. Union Bank had 53 branches, situated in different areas of Pakistan.

When foreign banks enter into a country, it has many positive effects on the country's economy. It increases foreign direct investments and quality of service of the banks as well. The privatization of the state owned banks show that foreign banks in Pakistan are having a very good time.

Prime Minister Syed Yousuf Raza Gilani said Pakistan's banking sector would be further strengthened and become more competitive, with the entry of foreign banks into the country.

Gilani welcomed foreign banks' entry into Pakistan and expressed the hope that they would extend their operations especially to the country's rural areas where 70 percent of the population lives. He also emphasized the need for catering to the banking requirements of the small and medium size industries, as they form an important part of the industrial sector of the country.

The prime minister said as part of its financial sector reforms, the government was encouraging consolidation of banking sector through mergers and acquisitions so that stronger banks provide a full range of services and improve the outreach of financial services to a larger segment of population.

Foreign banks/companies play very important role in boosting up the economic and development of any country. Direct foreign investment is very beneficial than the portfolio investment and it benefits to all. It gives benefit to the people of that country by providing employment and DFI also gives benefit to government by increasing foreign reserves. These banks/companies also pay taxes, royalties, copyrights, licensing, and patent fees.

Local commercial banks only facilitate customers but foreign banks facilitate the whole country. Government should facilitate the foreign investors by providing them good environment and security to investments.

The writer is final year MBA student in Sindh University Jamshoro.