http://www.dawn.com/2006/05/04/ebr3.htm



Banking assets reach $60bn




By Our Staff Reporter

KARACHI, May 3: State Bank Governor Dr Shamshad Akhtar has said that the banking industry in Pakistan has witnessed a brisk growth in assets in recent years which now stand at over $60 billion.

Delivering a speech at the Global Transaction Banking seminar here on Wednesday, Dr Akhtar said Pakistan offered a promising ground for financial experimentation and innovation. “Pakistan’s banking industry has seen a brisk growth in assets which today stand at over $60 billion. Bank’s profitability is at an all-time high and unprecedented, reaching close to Rs93 billion by 2005,” she said.

“Aside from higher efficiency, gains in the industry attributable to benefits arising from significant banking sector restructuring and reforms, and high profitability of banks has been achieved because of high interest margins,” said Dr Akhtar.

The SBP governor said that in the period ahead, the financial industry, however, had to be positioned for a more competitive environment and had to cater for more diverse and complex requirements of Pakistan’s consumers and infrastructure. Pakistan, like the rest of Asia, is growing fast and a rise in per capita income, emergence of the middle income group and relative wealth increases all together bring with them new demands for the retail banking industry.

“Beside real sector developments and requirements, the financial industry of Pakistan has to catch up fast with the global developments and achieve better financial diversification and strengthen its risk management systems,” said the SBP governor.

“In Pakistan’s context, it has to be recognized that while large banks will continue to thrive on volumes of business, which they have traditionally captured given their reach across the country, it is the foreign banks with their competitive edge in global transaction banking that can offer unique and new financial solutions,” she added.

Pakistan’s real time inter-bank settlement mechanism is at an advanced stage of installation and is expected to be lived by the 3rd quarter of 2006, Dr Akhtar said.

The coverage of online branches as a percentage of total branches (7,245 branches) has now reached 45 per cent. At this pace, the whole branches network of the banking system will be online in the very near future, which will substantially improve efficiency of the payment system.

Usage of cards at POS (Point of Sales) is expanding with the passage of time. This channel recorded remarkable growth of 62 per cent in number of transactions to 13 million transactions in FY05 from 8 million in the previous year. Value of transactions grew by 56pc to Rs42.8 billion in FY05 from Rs27.4 billion in FY04.

“The Global Transaction Banking concept, though newer to Pakistani banks, will help service the ever-growing need for Pakistan’s trade and finance and facilitate investors’ awareness about the growing Pakistani economy and markets. We see inter-exchanges like this would further strengthen the transaction banking business in Pakistan,” Dr Akhtar concluded.

Still some people insist that Pakistan GDP is around $ 90 Billion.

gdp has nothing to do with your assets! You can earn 10 $ for 100 years and have assets of 1000$ but your gdp each year would be still 10%

the assets of the banking sector are mostly loans they have extended to firms and households. has zilch to do with GDP.

this is worrisome in a sense that huge risk managment is required now...which is not a common habit of general public.....it could led to land crash of that land marks we are hearing today

consumer spending is driving some of he GDP growth. If the banks led less amounts of money GDP will fall. There is a fine balancing act that is required. Trust the government, they should know what they are doing. They have got us this far.

they have gotten us this far, but we're still riding on the back of inflation. Consumer lending and spending is very inflationary. SBP should raise interest rates for two reasons: to curb huge inflation, and second, and very important, to protect the banks from excessive lending.

Again, I dont know what kind of risk management system Pakistani banks are using.
DilPakistani mentioned that if something does happen to the banking system, it would lead to a real estate crash. all those people buying land would be left with a big mortgage and negative equity on their property.

We shouldnt really speculate in such a negative way...this alone can cause a crash especially since we dont know how much risk is actually taken by the banks. home mortgage loans are much less risky, since there is at least a collateral of the home, but car loans....the value works itself to nothing in a couple years.

Sounds like the pre WSC booming 20's.

Hope not. But we dont have FDR to nurse us better.

I think we already had our little recession/depression back in the 1980s and 1990s! Besides, wasn't it a massive war drive that brought the Western economy back up on its feet?

"they have gotten us this far, but we're still riding on the back of inflation. Consumer lending and spending is very inflationary. SBP should raise interest rates for two reasons: to curb huge inflation, and second, and very important, to protect the banks from excessive lending."




we cant raise interest rates any more becuase many local companies are hurting, such as the textile sector which have to pay alot of money to banks as finacial charges every year because of high interst rates. As many textiles companies prfits are down and last year 90 knit wear companies close down because of high interest rates. Pakistan economy is mainly textile economy and high interest rates are hurting it. Rising more would be bad for it. Only banks are making money.

we can keep up with high prices of basic goods for a small period of time, after that, the bads are gonna catch up with the goods.

This is increase is obviously due to an exponential increase in the use of credit. The banks accounts receiveables must be bloated, and I really doubt any of that is cash.

and i hope they write off the bad loans and take the loss, instead of exponentially increasing the receivable which they're not gonna receive. that's what Japanese banks did. they showed big assets, but there was no chance of them getting those loans back.

Our exports are driving the GDP growth, our export market is booming compared to prevoius years and we are also inviting alot of FDI. The consumer market is also hitting new highs as is the construction sector.

Karachi port is filling up with machines and diggers from mainly Malaysia, Singapore and South Korea we are seeing a construction boom in Pakistan like never before.

^^that's true. but what we're saying here is that two of those three things are vulnerable to bad banking practices: consumer and construction markets.

I was looking at UBL's consumer lending section for car financing.
http://www.ubl.com.pk/consumer/drive/ubl_drive.asp

they give you an option to get financing without showing any documents/proof, for an extra 5%. that is a ridiculous amount of risk! and you only have to make a 10% down payment.

to get a consumer loan of 50,000 to 500,000, an individual only has to have Rs 10,000/month salary and must have been employed for the past 6 months.
i dont know what to say. i just hope they are doing some kind of research on those people, and not just handing out loans.

Pakistan's economy is such a melting pot right now that banks are establishing themselves in the consumer market without any instituitional framework. Though state bank is continously regulating new instruments and establishing control but it'll take time to establish procedures and controls such as FICO scores and credit history etc...

Right now pretty much the criteria for any loan is your age, monthly income, direct deposit, employer info and the number of years left till retirement. Though compairing to a FICO credit evaluation system, this might give westerners a nightmare but we have to look at the Pakistani economy right now with a different point of view. One thing to note is that in Pakistan an average person's debt to equity or debt to income ratio is no where near that of teh developed world. A vast majority of people don't have 2 or more credit cards, house mortgage, home equity loans, car loans, manufacturers' credit cards etc...

Though we have a population that is rapidly approaching all financing instruments, most of it is still related to consumer financing of general house hold items. There is always risk attached in such scenario but looks like the banks are willing to take more risk at this time just to create their market niche than playing conservative.

I read in a State Bank's overview that despite such high risk of financing, banks rate of return was very encouraging and people were very serious about sticking to the payment plans they had signed for. Obviously there would be bad eggs there but overall people want to take advantage of extendid credit dor a short time period and want to get it over with.

I personally think alot has to do with the muslim mentality of not indebting yourself too much which is not the case in the western world. Besides the rapid increase in the middle class is keeping banks busy and there won't be a stop anytime soon keeping in mind the economic and population forecast.

But I am looking forward to the day when the true Islamic Banking takes over the conventional banking system in volume and money and become a leading role model for the muslim world. This would provide us something that we can be proud of and feel the sense of ownership of it. Because that's the ultimate economic system mostly because Allah and Rasool (PBUH) is on your side here and not at war with you.

Good news

i have 2 questions;

1) how much is 1 BILLION Pakistani Rupees?? in terms of GB Pounds ?

lets assume conversion is 1 GBp = 100 rupees,

2) How many Millions in a Billion?? 100 Million? or 1000 million??

1000 million = 1 Billion

Rs. 1bil = 10mil gbp

I think the govt's first generation of reforms which also included reformation of SBP and commercial banks has brought more documentation of banking transactions. A lot of large transactions used to be cash in pre 2001 scenario but now either they are prohibited or have a tax on them. But this has increased banking transactions in our economy.

The other aspect of such reforms was also to encourage banking system among consumers. And it has done a good job as the country has witnessed millions of new deosit and saving accounts. Another factor that promoted this was the elimination of saving certificates and restriction of defense saving certificates to only certain people.

I wouldn't be surprised if a lot of our small and medium businesses did not have bank accounts in pre 2001 era and had only cash transactions. Alot of them are probably still in hiding.

But to measure the development of an economy's banking system, we look at the total number of cash transactions Vs the non-cash (checks, drafts, electronic trans). The higher the documented non cash transaction an economy has, the more developed and less risk based its banking system is.

Such documentation of economy also helps the central bank and the govt devise their policies in a timely manner since accurate and reliable stats are timely available.

I personally think, this is still half the size of what our banking assets should be if the black money was brought in from overseas and the black economy was unearthed.

we need to further expand our banks in foriegn nations


for example the hong kong shanghai banking community (HSBC) is the biggest bank in UK! and this has results also because the money they get in the UK is invested back in china. which is good or their economy.