7/28/2019 Opportunities and Challenges facing the Financial Sector in Pakistan: Hypothesis

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Sohailuddin Alavi, March 12, 2013 (ccgroup.pakistan@gmail.com)

Opportunities and Challenges facing the

Financial Sector in Pakistan:1. Hypothesis

Financial services sector in Pakistan has evolved from conventional and conservative through customer

hungry competition during the last two decades much fueled by global deregulations resonated into

Pakistans financial sector; influx of mushroom local banks in the private sector ; and, opening of

branches by many foreign banks. Ironically, the cost of transition far exceeded the envisioned

advantages so much so that at a point in time smaller local banks and single branch multinational banks

were either acquired by bigger ones or they merged amongst themselves to upscale their shock bearing

thresholds. Citi Group recently retreated back to its earlier position, which is a clear acknowledgement

of the scenario noted above. In short, on the whole every bank that enthusiastically embraced the

impulsive competition posted very little to no sustainable advantage on their balance sheets. On the

contrary, banks that approached the competition rationally and cautiously were able to do no harm to

their balance sheets.

Interestingly, the US financial melt down that truly turned into a global syndrome preempted the State

Bank of Pakistan like many other Central Banks for strengthening laws and regulations that were in the

interest of the depositors in particular and of the sector in general. Signing of Basel III agreement;

enforcement of Corporate Governance; strengthening of risk management and compliance regulations;

etc. are but a few measures taken by many Central Banks including State Bank of Pakistan. The result is

now the consumer hungry competition has been harnessed within the bounds of prudent laws,

regulations and practices that are technically aimed at protecting the banks from sliding into havoc

situations. But the damage to banking culture that affected most of the banks as a by-product ofconsumer hungry competition entails bigger challenges for the much needed correction.

In conclusion, to put the banks back on prudent lines is a humongous task. Each stakeholder in the

sector has to play its role in this pursuit. The indicative interventions are summarized below:

i. Re-regulations and their implementation in the letter and spirit by the Central Bankii. Implementation of code of Corporate Governance in the letter and spiritiii. Implementation of international best practices in risk management, compliance, internal

controls/audit at every level in banks

iv. Intensive re-orientation and capacity building of employees at each level augmented by rigorousperformance management system and policies

v. Enforcement of depositor protection laws and regulations

7/28/2019 Opportunities and Challenges facing the Financial Sector in Pakistan: Hypothesis

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Sohailuddin Alavi, March 12, 2013 (ccgroup.pakistan@gmail.com)

Indicative Research Questions

i. You will agree that banking in Pakistan has changed at 360o during the last two decades. Whaton the whole have the banks gained and lost?

ii. What in your opinion were the driving forces that fostered the change?iii. How do you rate the influence of international financial institutions in shaping the local banking

culture?

iv. How do you assess the role of State Bank of Pakistan in promoting the culture directly orindirectly?

v. How do you see the re-regulations made of late to reverse the derail?vi. How do you make individual banks responsible in the emergence of the new culture?vii. What role do the banks must play to avert the dysfunctional effect of the new culture both

internally on their respective productivity, organization structure, and cost of doing business,

and externally on the competition, customer protection, compliance, etc.?

viii.What challenges Pakistani banks are facing currently?ix. How do you envision the future of Pakistani banking industrys future profile?