Feb 21 - 27, 2011

Pakistan is described as underserved country in terms of the banking facilities which are primarily concentrated in the urban centres of the country, yet banking is rightly considered as one of the best performing sectors in the region.

A vast majority of the population is rural based where neither conditions are conductive for the outreach of the banking sector nor people are equipped with the education facilities.

The political influence in the rural areas always discourages documentation of agriculture income, which is one of the major reasons for keeping agriculture income off the banking hook. Had the agriculture sector and agriculture earnings been free from political infection, the size of the banking industry must have been multiplied many times from what it is today.

The performance of the banking sector in urban centres is quite impressive while the foreign investment in this sector has also helped transfer of banking tools and technology reflecting in the glaring performance of the financial sector.

In this backdrop, the scope of payment systems infrastructure continues to show a growing trend reflected in the value and volume of e-transactions crossing Rs5.5 trillion mark during second quarter of the fiscal 2011.

The overall value and volume of e-transactions during the said period reached 56.42 million and Rs5.5 trillion respectively showing an increase of 7.30 per cent in volume and 17.47 per cent in value compared to the previous quarter.

ATMs, being the largest channel for e-banking transactions, showed 5.6 per cent increase in number of transactions and 9.5 per cent increase in value which resulted in average value of Rs8,804 per ATM transaction. A significant increase was also recorded in transactions related to real-time online branches (RTOB) as the number of such transactions grew by 10.59 per cent and value of transactions increased by 17.97 per cent.

According to latest data of the central bank, 309 more bank branches have been upgraded to Real Time Online Branches (RTOBs). Now 7,036 bank branches are offering real-time online banking out of total 9,483 bank branches existing in Pakistan, the report added. Similarly, the number of plastic cards (i.e. ATM, Debit and Credit Cards) also increased by 19.21 per cent compared to the previous quarter. At the quarter end, there were 13.19 million plastic cards in circulation.

This trend was also witnessed in the large value payments settled through Pakistan Real-time Interbank Settlement Mechanism (PRISM), which increased by 12.73 per cent in volume and 13.49 per cent in value of transactions compared to the previous quarter. The major portion of PRISM transactions in terms of value was settlements against securities which accounted for 46 per cent of the total transactions followed by Interbank Funds Transfers (38 per cent) and settlement of retail cheques multilateral clearing (16 per cent).

The volume and value of paper based retail payments during the quarter under review were 88.46 million and Rs39.07 trillion respectively which increased by 6.63 per cent in volume of transactions and 9.75 per cent in value of transactions compared to the previous quarter. The contribution of paper-based payments in total retail payment transactions was 61.06 per cent in terms of volume and 87.73 per cent in terms of value while the rest of the transactions originated from e-banking, it added.

It may be mentioned here that safe, efficient and reliable payment systems are vital part and backbone of financial infrastructure of a country which provide the essential base for financial stability. The primary goal of a payment system is to enable fast and risk-free circulation of money in the economy, an essential prerequisite for satisfying timely payment obligations and improve liquidity in the financial markets.

The growth in banking system has been driven by rise in deposits to Rs4.1 trillion and advances to Rs3.3 trillion. Banks as profitable ventures have attracted close to over $4 billion of foreign direct investment during 2006-2008. Almost half the assets of banks are now owned by foreign banks that are introducing innovation and technological improvements.

Recapitalization and prudent lending supported by strong regulatory and supervisory framework have lowered net non-performing loans to historical lows. In line with international trends, SBP introduced Basel II and banks have higher capital adequacy levels, well above the minimum level for the sector as a whole.

Despite economic shock and stress in stock market, the banking system in the first quarter of the fiscal year 2009 has shown an increase in profitability of the banking system. SBP's policies, regulations and supervision systems have been substantially transformed and barring one area (i.e. noncompliance with consolidated supervision principles progress) SBP regulatory and supervisory framework is now in line with the international best practices and norms.


Despite impressive growth attained by the banking industry, there remains a lot of room for improvement for the private sector. Currently, a large chunk of the credit goes to the government naturally hampering growth of the private sector. High interest rate is blocking the way of cottage industry as well as small entrepreneurs. The banking sector's spread is quite high visibly reflected in the yawning gap between rate of returns on deposits and lending. Above all, the documentation of the agriculture income is the only way to pave the way for economic growth, revenue growth for the government and of course growth of the banking sector in the real sense.