BANKING SECTOR REFORMS 1/
Current Status and Future Prospects
Pakistan’s banking sector has been faced with at least several problems
and difficulties. The main problems faced by the sector are:-
Most of the financial assets and deposits are owned by nationalized
commercial banks (NCBs) which suffer from a highly bureaucratic
approach, overstaffing, unprofitable branches and poor customer
NCBs along with specialized banks such as ADBP, IDBP and
Development financial institutions such as NDFC have a high ratio of
Banking industry faces a high tax rate which affects its profitability
and attractiveness for new entrants.
is a proliferation of banks and some of
undercapitalized, poorly managed with a scanty distribution network.
Agriculture, small and medium enterprises, Housing sectors are
underserved and have limited access to credit.
1/ Presidential Address at the Seminar organized by Management Association of Pakistan at
Lahore held on August 31, 2002.
Banks have typically focused on trade and corporate financing with a
narrow range of products and have not diversified into consumer and
mortgage financing for which there is an ample unsatisfied demand.
Despite these problems and difficulties it is fair to say that a lot of
progress has been made to improve the health and soundness of the banking
sector in recent years. Although a lot more needs to be done and there are few
weak and vulnerable institutions the banking sector in Pakistan is much stronger
today compared to five years ago or in comparison to other countries in the
region. What are the factors responsible for this improvement? A large number
of reforms have either been undertaken or under way.
First, the nationalized commercial banks are being privatized and their
domination of the banking sector is likely to be reduced from almost 100 percent
in 1991 to about 20 percent by