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Performance of foreign banks in Pakistan.

There were 22 foreign banks in Pakistan in 1992. However, Middle East Bank has been merged into Emirates Banks during the year under review, thus the number has declined to 21. In table on Page 48 working results of 21 banks have been given.

Total deposits by foreign banks have registered more than six fold increase, up from Rs. 10,689 million in 1983 to 74,340 million in 1992. The deposits and advances of the foreign banks have been illustrated in the following table:-
Deposits and Advances of Foreign Banks

 (Rs. in million)

Year Branches Deposits Advances

1983 59 10,689 7,443
1984 60 11,948 8,310
1985 60 13,750 10,384
1986 62 18,082 13,589
1987 63 23,472 17,297
1988 65 26,346 21,140
1989 66 34,700 22,703
1990 67 42,348 25,548
1991 68 59,767 29,546
1992 71 74,340 34,233

Source: SBP Annual Report 1991-92

The deposits of foreign banks as ratio of total deposits increased from 9.98 per cent in 1983 to 18.90 per cent in 1992. The advances of foreign banks as ratio to total advances have also shown an increase from 9.93 per cent in 1983 to 15.08 per cent in 1992. The foreign banks have an edge over Pakistani banks as they have worldwide network and vast banking experience. To ten foreign banks according to deposits were as follows in 1992:-
 (Rs. in million)

Name Deposits

1. Citi Bank 18,165.10
2. ANZ Grindlays 8,853.41
3. American Express 7,435.90
4. Bank of American 7,232.62
5. Standard Chartered 5,263.05
6. Emirates Bank 4,545.22
7. Faysal Islamic 4,198.69
8. ABN Amro 3,484.63
9. Habib Bank A.G. 2,514.23
10. Bank of Oman 2,389.02

There are three American banks operating in Pakistan, these include Citibank, Bank of America and American Express, which usually avoid competing with each other in a single foreign country. Recently, Muslim Commercial Bank has acquired the assets inclusive of two branches of Chase Manhattan Bank N.A. in Pakistan for 4 million dollars. The two British banks consist of Chartered Bank and Grindlays. The former started its business in this region in 1863 while the latter began operating in Pakistani areas in 1883. Grindlays' Bank has 14 branch offices in Pakistan which are doing brisk business. In addition to these, Pakistan has three European banks which do not offer any serious competition. Of the five Middle East Banks, one has closed down and its business has been taken over another bank of the same category namely Emirates Bank. Similarly, the BCCI has also been closed down and its three branches were taken over by Habib Bank. The plus point of these Middle East banks is that their top management largely consists of Pakistan bankers formerly occupying the post of senior executives in leading Pakistani banks. Most of them left the Pakistani banks after nationalisation and joined their Middle Eastern counterparts.

The Pakistani clients are quite well known to them and thus their utility to the employers can hardly be over-emphasized. They have a definite edge over other foreign banks operating in Pakistan. By offering tough competition to nationalised commercial banks, the foreign banks have contributed much to better standard of banking service in the country. Foreign Banks in Pakistan are:-

* American Express Bank Limited

* ANZ Grindlays Bank p.I.c.

* ABN Amro Bank Ltd.

* Al-Baraka Bank Ltd.

* Bank of America

* Bank of Tokyo

* Bank of Oman

* Banque Indosuez

* Citi Bank

* Doha Bank

* Deutsche Bank

* Emirates Bank

* Faysal Islamic Bank

* Habib Bank A.G.

* Hongkong and Shanghai Banking Corporation

* International Finance Investment and Commerce Bank Ltd.

* Pan African Bank

* Rupali Bank

* Societe De Generale Bank

* Standard Chartered Bank

Capital requirements of foreign banks have to be met either from remittances of retention of profits made in Pakistan under the Banking Companies Ordinance as amended in June, 1978. Currently foreign banks maintain capital of 7-1/2 per cent of their demand and time liabilities is Rs. 5 million whichever is the higher.

Foreign banks are mainly concentrating in the field of foreign trade financing with emphasis on export financing. All the Euro dollar loan syndication for the Government of Pakistan have been managed by foreign banks. In the area of aircraft financing too, the foreign banks have played a leading role. In the area of leasing and hire-purchase, some of the foreign banks have volunteered to draw down on their institutional experts to provide the expertise to make leasing a reality. In the case of automation and electronic banking, the foreign banks moved at a faster pace than the local banks.

The Government has allowed foreign banks and professional management to float Investment Finance Companies (IFCs). American Express and Grindlays have already set up their investment banks in 1988. The sponsors are required to raise at least Rs. 100 million as equity. Except for bar on raising deposits and issuing of cheque books these Investment Financing Companies would perform all the functions of a commercial bank. This has led to speculation in the capital market that those IFCs which develop sound working and show good performance may be converted into scheduled banks at a later date. The gradual opening up of the financial sector to foreign banks has increased their role in the country's economy. Two foreign managed leasing companies are also proving a success.

It may be noted that while banking sector is expanding, the Government is doing everything to encourage its expansion. Depositors in banks have to pay Zakat which could be as high as 25 to 30 per cent of the profit or the interest in addition to 10 per cent as income tax. There is a tax of Rs. 1 on each cheque leaf and 1 per cent tax on borrowing for investment and 2 per cent tax for borrowing for other purposes. Such steps are real deterrents to popularising banking at a time when the interest rates paid by banks are less than half the real inflation rate.

In the west, banks are open to the public until 3 or 4 p.m. In addition, the use of credit cards is very common there and account holders can draw their money using teller cards at night. Such facilities are very scarce in Pakistan, and yet the banks provide access to the public for 20 hours only in a week.
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Author:Haque, Ansarul
Publication:Economic Review
Date:Sep 1, 1993
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