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Foreign banks in Pakistan.

The current era has indeed witnessed phenomenal growth in the financial institutions of the country. By March 1995, there were as many as 43 scheduled banks, 13 DFIs, 52 modarabas, 26 leasing companies, 12 investment banks The following is a list of investment banks Financial conglomerates
Large financial-services conglomerates combine commercial banking and investment banking, and sometimes insurance.
, four housing finance companies and two discount and guarantee houses. Along with Pakistani banks, the number of foreign banks operating in Pakistan at the end of June, 1995 has been 19 with 71 branches, which have offered tough competition to Pakistani banks and thereby contributed in upgrading the standard of banking in the country. Their growth, performance and professionalism have been indeed outstanding and commendable.

It is noteworthy that the foreign banks with a 15% ratio in the total deposit have earned a profit of around 50% of aggregate profit of banks. This speaks volume of their efficiency, better technology, innovative products and high standard of service. However, there is another perception about such accomplishments. It is argued that foreign banks generally operate in safe areas, insofar in·so·far  
To such an extent.

Adv. 1. insofar - to the degree or extent that; "insofar as it can be ascertained, the horse lung is comparable to that of man"; "so far as it is reasonably practical he should practice
 as their operation is confined to big commercial and industrial cities, whereas the local banks are required to operate in rural and remotest areas also. Besides, foreign banks handle limited amount of accounts, catering mostly to multi-nationals and big companies. They are mainly concentrating in the field of foreign trade financing with emphasis on export-financing, although recently, big industrial projects are also being covered by their portfolio. All the Euro-Dollar loans syndications for the government of Pakistan Government of Pakistan (Urdu: حکومتِ پاکستان), The Constitution of Pakistan provides for a Federal Parliamentary System of government, with a President as the Head of State and an indirectly-elected Prime  are managed by foreign banks.

They are charged for exorbitant charges for many-faceted services. Only recently, a foreign bank has started charging "Service fee on outstanding balance, whenever and wherever applicable at the rate of 3% per month effective from July 1, 1995." Some benefit of reduced-cost and increased profit, sustainable due to sound and scientific management must also be passed on to their clients in the form of diminished service charges. The administrative cost administrative cost Managed care A cost incurred by the 'business' end of a health care facility or university–eg, staffing and personnel costs, nursing home and hospital administration, insurance, and overhead expenses. Cf Indirect costs.  of foreign banks in Pakistan The following is the list of banks in Pakistan. Central bank
  • State Bank of Pakistan
Nationalized scheduled banks
  • First Women Bank Limited
Specialized banks
  • Industrial Development Bank
 is only 4%, compared to as high as 24% of nationalised banks.

We wish that the foreign banks must enlarge the scope of their operation and undertake such functions also, as catering the financial need of agriculture and small scale industry, which are being performed by the local banks and thus contribute in a big wayt to the socio-economic development of the country. This will enhance their prestige and creditability and will be well-construed as full patronage of Pakistan and its economy. Their adequate and expanded coverage of both area and population would help exploit full potential of house-hold savings which continue to be lower, as compared to identical economies.

The government, in pursuance of in accordance with; in prosecution or fulfillment of.

See also: Pursuance
 its policy of deregulation Deregulation

The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry.

Traditional areas that have been deregulated are the telephone and airline industries.
 as well as in line with the dictates of IMF IMF

See: International Monetary Fund


See International Monetary Fund (IMF).
, has introduced a series of financial reforms and slowly evolving a marked-based monetary policy. The State Bank of Pakistan The State Bank of Pakistan (SBP) is the central bank of Pakistan. While its constitution, as originally laid down in the State Bank of Pakistan Order 1948, remained basically unchanged until January 1, 1974, when the bank was nationalised, the scope of its functions was  has withdrawn the additional ratio of special cash deposit of 1.6% by banks. Similarly, credit deposit ratio has been raised from 31% to 36%. The Central Bank has intensified the process of open market operation as an instrument to contain credit and consequent inflation. Nevertheless, the decapping of interest rate, to be determined now by the market forces of demand and supply, has had a damaging and deleterious impact on the cost of production as well as exports. The foreign banks, which have an access to the cheap loanable funds in the country of their origin and have relatively more freedom to operate, must be instrumental in lessening the cost of borrowing and thus preventing the local industry from being unviable and the exports incompetitive. They can indeed play a pivotal role in making the off-share banking of providing loans on L/cs to the exporters a real success, as envisaged in New Trade Policy.

Foreign Investment

The national rate of saving in Pakistan, is around 14% and the current rate of investment is 19% of GNP GNP

See: Gross National Product
. This Saving-Investment gap is bridged by borrowing, either through indigenous or foreign sources, with all its critical in built problems.

The foreign banks, besides making their own direct investment in various projects, must act as catalyst to induce private foreign investment. Needless to emphasise that Pakistan is a land of opportunity, it is a land of splendour and a haven for foreign entrepreneurs. The macro-economic policy framework is very cordial and conducive for foreign investment and the package of incentives and facilities is second-to-none. It is due to this reason that a record memorandum of understanding A Memorandum of Understanding (MoU) is a legal document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action and may not imply a legal commitment.  to the tune of over $20 billion worth of investment were signed and the foreign investment of about 1.7 billion dollar was recorded during last fiscal year. The foreign banks could make their valued contribution in re-enforcing this favourable trend.

It has been reportedly learnt that the foreign banks have taken up the matter with State Bank for allowing them margin and options trading. It seems to be a sort of hedge trading and whose success would be conditioned by necessary check and balance as well as an effective regulatory framework. I hope that you would like to enlighten us on this very subject as we are not very much familiar with the proposed mode of trading.

Training Institute

It is indeed reassuring that the ANZ ANZ Australia and New Zealand
ANZ Australia and New Zealand Banking Group Limited
ANZ Air New Zealand (NZ national airline) 
 Grindlays Bank Grindlays Bank was a British overseas bank that Standard Chartered Bank acquired in 2000.

Robert Melville Grindlay (1786-1877), who had retired from the Indian Army as a Captain, established a firm, Leslie & Grindlay, in London in 1828, to arrange passage to and from India
 in collaboration with the Institute of Business Administration, sometime back, launched the MBA in banking programme, to enhance the quality of professionalism in banking. Admittedly, the foreign banks are known for their drive and dynamism because of better training and professionalism. It would indeed be in the fitness of things, if they contribute their share in the human resource development by setting up an institute for Training in banking so that their knowledge, expertise of modern management and technology is transmitted to the existing as well as prospective personnel of local banks. A capable corps of bankers, which could meet the dictates of the modern technical and competitive era and conform to the international level of efficiency and creditability is indeed an unescapable necessity of this country.


           Performance of Local & Foreign Banks - 1993

              (Rs. in Billion)        (Market Share in %)
                Local Foreign            Local  Foreign
Description     Banks  Banks    Total     Banks Banks      Total

Deposit       525.687  97.283   822.970   84.38  15.62    100.00
Pretax Profit   7.012   5.713    12.725   55.00  45.00    100.00
Advances      290.930  50.994   341.924   85.00  15.00    100.00

Source: Performance Highlights of Commercial Banks in Pakistan by
S.M. Ali Sohail, Director, Indus Bank Ltd.

                      TABLE - II
              Assets - Profit Ratio of
              Foreign Banks Operating
               in Pakistan and China

                        Foreign        Foreign
                       Banks in       Banks in
                       Pakistan        China
Description            (`1993')       (`1995')
   (a)                   (b)            (c)

Assets (Billion Rs.)    126.40        449.50
Profits (Billion Rs.)     5.70         4.94(*)
Ratio (%)                 4.50         1.10

(*) Estimated on the basis of 6 months
profit i.e. Jan-June 1995.
Source: 1. Performance Highlights of
Commercial Banks in Pakistan.
2. Dawn of August 06, 1995,
for column (c).

          Spread Rate of Selected Local & Foreign Banks
                   Operating in Pakistan - 1993

                       Av. Lending    Av. Borrowing   Spread
Name of Banks               Rate %    Rate %            %

MCB                         21.46     7.52            13.94
NBP                         23.05     6.27            16.78
HBL                         15.30     6.87             8.43
UBL                         12.78     5.38             7.40
Bank of Tokyo               22.22     6.14            16.08
American Express            23.64     6.31            17.33
Bank of America             20.81     7.19            13.62
Citi Bank                   20.68     6.54            14.14

Source: Chamber's Computation Based on Balance Sheets.
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Author:Sattar, Ahmed A.
Publication:Economic Review
Date:Sep 1, 1995
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