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Performance of foreign banks in Pakistan.

Performance of Foreign Banks in Pakistan

Foreign Banks in Pakistan have satisfactorily widened their operations in 1989. There are as many as 20 foreign banks in Pakistan. During 1987-88 two foreign banks including Doha Bank Limited and Faisal Al-Islami of Bahrain have opened their offices. Total mobilisation of deposits by foreign banks have registered more than three-fold increase up from Rs. 10,689 million in 1983 to Rs. 34,700 million in 1989. The growth of deposits and advances of the foreign banks have been illustrated in the following table.

The deposits of foreign banks as ratio of total deposits increased from 9.98 per cent in 1983 to 15.69 per cent in 1989. The advances of foreign banks as ratio to total advances have also shown an increase from 9.93 per cent in 1983 to 14.27 per cent in 1989. The foreign banks have an edge over Pakistani banks as they have worldwide network and vast experience. Top ten foreign banks according to deposits are as follows:

At present, there are four American banks operating in Pakistan. These include Citibank and Chase which usually avoid competing with each other in a single foreign country. The two British banks consist of Chartered Bank and Grindlays. The former started its business in Pakistan in 1863 while the latter began operating in Pakistani areas in 1883. Grindlays' Banks 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 by another bank of the same category. Among the four existing banks is the BCCI which is, technically speaking, not a Middle East bank but it is oil-based by origin. The plus point of these Middle East banks is that their top management largely consists of Pakistani 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.

1. American Express Bank Limited

2. Bank of America

3. The Bank of Tokyo Limited

4. The Standard Chartered Bank

5. Citibank N.A.

6. Deutsche Bank (Asia)

7. Algemene Bank Nederland N.V.

8. ANZ Grindlays Bank p.l.c.

9. Rupali Bank

10. Bank of Oman Limited

11. B.C.C.I (Overseas) Ltd.

12. Emirates Bank International Ltd.

13. Middle East Bank Limited

14. Doha Bank

15. Banque Indosuez

16. The Chase Manhattan Bank N.A.

17. The Hongkong and Shanghai Banking Corporation

18. Massraf Faysal al Islami

19. International Finance Investment and Commerce Bank Ltd.

20. Habib Bank AG.

Capital requirements of foreign banks have to be met either from remittances or 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 in Rs. 5 million whichever is 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 decided in principle to allow foreign banks and professional management to float Investment Finance Companies (IFCs). Americann Express, Grindlays, and BCCI have already got the approval in 1988. BCCI permission was expired. However, Aga Hasan Abidi has applied for permission of investment bank in his personal name.

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 proving a success. Others are in the pipeline. Over the past few years the share of foreign banks in total deposits and advances has been rising steadily.
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Author:Haque, Ansarul
Publication:Economic Review
Date:Oct 1, 1990
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