Commercial Banking - Muz[1]

8/8/2019 Commercial Banking - Muz[1]

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COMMERCIAL BANKINGCOMMERCIAL BANKING

IN PAKISTANIN PAKISTAN

Shaheryar Imam Irfan Gujjar

Mohsin Khan Taimoor Iraqi


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INTRODUCTION

COMMERCIAL BANKING

A Commercial Bank is a financial institutionwhich accepts deposits, makes business

loans, and offers related services.


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ROLEOFCENTRAL BANK

They generally provide liquidity to thebanking system.

Act as Lender of last resort in event of acrisis.

All commercial banks act under the

regulations set by the central bank.


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BACKGROUND

Early commercial banks were limited toaccepting deposits of money or valuables forsafekeeping coinage or exchanging onescoins for anothers.

By the 17th century, foreign exchange, thepayment of interest and granting of loans wasin place.


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After the great depression and the stock

market crash of 1929 in USA, an Act was

passed requiring that commercial banks

only engage in banking activities whereas

investment banks were limited to capitalmarket activities.


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World Top BANK :


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BriefHistory OfBanking In Pakistan :

The Bank of Credit and Commerce International(BCCI) was a major international bank founded in

1972 by Agha Hasan Abedi, a Pakistani financier.The Bank was registered in Luxembourg. Within adecade BCCI touched its peak, it operated in 78countries, had over 400 branches, and had assets inexcess of US$20 billion making it the 7th largest

private bank in the world by assets.

Note : Agha Hasan Abedi is considered as the Father of Modern Banking

in Pakistan


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COMMERCIALBANKINGINPAKISTAN

Nationalization Act 1974 as a part of financialliberalization strategy of 1990s, private sectorwas allowed to open commercial banks in

1991. At that time fifteen banks were opened.

Objective: -

to direct bank credit towards specificdeveloping sectors and to provide a source offunding to the government.


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In 1991 two of the publicly owned banks, the MuslimCommercial Bank (MCB) and Allied Bank (ABL)

were privatized. At the same time permission wasgranted for setting up of new banks in the privatesector with 10 new banks getting licenses tocommence their operations in 1991.

In 1999, there were 19 domestic banks andseventeen foreign banks in Pakistan. Of thedomestic banks, four were owned by the federalgovernment, two were privatized, two were ownedby the provincial governments and the rest were inthe private sector.


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The share of public sector banks in the assets

of the banking system was reduced to just 41percent by 2002 compared to over 92 percentin 1990, while that of private banks hadreached over 45 percent starting from nil in1990. Similarly, the share of public sectorbanks in the deposit base of the bankingsystem was reduced to 43.5 percent starting

from 93 percent in 1990.


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EVALUATION OF BANKINGSECTOR AFTER BASEL II

ACCORD


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As Basel II significantly expanded the

scope of use of credit ratings, measuresare required to encourage new comersinto this business but only afterthorough and rigorous supervisoryscreening on a continuous basis.

Basel II is primarily data driven. ThePakistan banking community needs tomake up for the data shortcomings toensure accuracy, timeliness and

reliability of data.


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Exposures over a certain limit will

invariably have to be rated and suchlimit over time can be brought down.

There is a need to accelerate theprocess of securitization.

commercial banks needs major up-gradation to conform to the leveldemanded by Basel II.


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The skills of existing staff will need to be

upgraded both at banks and at the SBP.Further, realignment of regulatoryreporting and IT systems at the SBP

with the requirements of data capturingunder Basel II will be required.


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MCR(MinimumCapitalRequirement)

Banks are required to raise theirminimum paid up capital (free of losses)

to Rs 10 billion by December 31, 2013instead of earlier set limit of Rs 23billion, says BSD CircularNo.7 of 15th

April, 2009 due to general globalslowdown in growth.


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DEVELOPMENTS IN BANKING

SYSTEM


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ElectronicBanking&Technological

Developments

Electronic Banking is the delivery ofbanking services through the use of

electronic communication, likeautomated teller machines (ATMs),automated loan machines (ALMs),the

Internet, the World Wide Web,telephones , stored value cards or otherelectronic devices


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In the country are developing more and moreconfidence over ease and security of usingplastic money.

The number of credit card holders which were

a little more than 0.200 million at the end ofyear 2000 are now close to half a millionwithin a span of three years.

The average monthly number and volume oftransactions has also almost doubled.


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FUNCTIONS OFFUNCTIONS OF

COMMERCIAL BANKSCOMMERCIAL BANKS


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Personal Loans

Car Financing

Credit Cards

Utility Bills


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Deposits

Remittances

Foreign Trade

Lockers.


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Phone banking

ATMs

Online Banking


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CORPORATEBANKING

Short/Long Term Finance

Trade Finance

Structured Finance


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E-Salary

Salary distribution to the employees ofvalued corporate customers


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Types OfCommercial Banking In Pakistan

PUBLIC SECTOR COMMERCIALBANKS

SPECIALIZED BANKS

PRIVATE SECTOR COMMERCIALBANKS

MICRO FINANCE BANKS


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PUBLICSECTORCOMMERCIAL

BANKS

Retail banking refers to banking in whichbanking institutions execute transactionsdirectly with consumers, rather thancorporations or other banks. Services offeredinclude: savings and checking accounts,mortgages, personal loans, debit cards, creditcards, and so forth.


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SPECIALIZEDBANKS

Specialized Banking refers to bankingin which banking institutions execute

transactions to a special group ofconsumers , rather than corporations orother banks. These Banks and

subjected to some welfare goals andobjectives to meet


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PRIVATESECTORCOMMERCIAL

BANKS

Banks operating and having all thecommercial activites but do not havegovernment stake; they may be publicly

listed and traded on stock exchanges


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MICROFINANCEBANKS

Banks with majorly operatingMicrofinancing activities that is the

provision of financial services to low-income clients, including consumersand the self-employed, who traditionally

lack access to banking and relatedservices


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Banks in Pakistan account for 95 percent of thefinancial sector.

Recent commercial banking trends include theimportance for large banks to create a personalrelationship with customers so that individuals feel

valued.


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In the past it never attracted the customers as:

The interest rates were highest compared to othercountries in the region.

Taxes were all time high.

Recoveries were hardly 25 percent. Political pressures efficiency.

The World bank and IMF never lent support to theindustry.

The middle class which is the backbone of anyeconomy was not given due attention by the bankingsector


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CONCLUSIONCONCLUSIONIn future, the banks are expected tomarshal power in the growing competitivemarket, which has a strong reputation of

fulfilling their promises and meetingexpectations of their clients.

Banks are now managed and run by abetter cadre of professionals andstakeholders who now actively participatein the affairs of banks

Commercial Banking - Muz[1]

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