The Governor, State Bank of Pakistan, Dr Shamshad Akhtar, has said that by the end of this fiscal year 47 percent of Pakistan's banking assets are likely to be in the possession of foreign banks, which would further enrich competitive environment and thus make the banking sector in Pakistan more efficient.
She expressed these views while talking to newsmen at the prize distribution ceremony of the Institute of Bankers of Pakistan (IBP), here on Wednesday.
She further said that foreign banks were targeting domestic smaller banks that were working efficiently but they could not meet the Central Bank's capital requirements. "After the take-over, such banks would operate on global standards. However, these banks would be operated by the local management, not by foreigners; moreover foreign banks would bring money and new technology, which would raise the standard of banking in the country," she added.
On inflation, she said that the core inflation has decreased to 5.7 percent, which is below the budget target; this reflects the success of the Central Bank's monetary policy. She pointed out that food inflation is caused by supply constraints, but the government has taken steps to correct the supply-demand gap, which would hopefully yield positive results.
On low deposit rates, she said that apart from the Central Bank, the depositors also need to shoulder the responsibility of demanding high returns on their deposits from their banks. Many banks have launched new products for depositors, she added.
On unlicensed dealers collecting deposits, she maintained that no such unlicensed dealers were permitted to gather deposits from the public; stern action would be taken by the SBP against those found guilty.
Earlier, while addressing the bankers, Dr Shamshad said that Pakistani banking sector was a big success story. She highlighted that World Bank in its latest report has termed Pakistan's banking sector as the best in South Asia. She averred that in the last few years its performance has been outstanding both in Pakistan and abroad. It has taken years to transform the local banking sector. She averred that phenomenal growth has been witnessed in banks' advances and deposits while there has been a notable cut in the non-performing loans which is below 2 percent.
According to her, the transformation took place only after the government had decided not to keep banks and economic management in its control. Thus, at present 80 percent of the local commercial banks are in the private sector, run by professional management. In the past few years, issues pertaining to loans and restructuring of banks were addressed; now the commercial banks were no longer a place of providing jobs, like in the past, but extending efficient services.
She stated that in 2006 banks' advances to market were at the tune of Rs 430 billion; the credit to the private sector would translate into economic growth as the money would find its way to industrial and other sectors; this was a healthy sign. She laid emphasis on diversification of credit and added that only 15 percent of the total loan were in consumer financing, which was very low against the normal practice in other countries.
She was of the view that there was nothing wrong in consumer financing, which in fact provides fiscal space to middle income group, which otherwise they did not have in the past. She was of the firm view that more credit should be extended to the agriculture and SME sectors. "Last year, Rs 130 billion of agricultural loans were given, but this figure was still low, because it does not meet the demands of this vital sector. According to estimation, Rs 250 billion is needed for loans in the agriculture sector," she added.
IBP Chief Executive Muhammad Saleem Umar and Bank of Punjab President Hamesh Khan also spoke on the occasion. At the end, the Governor SBP distributed awards to those who had completed their courses with the Institute of Bankers of Pakistan.