Today, there are advertisements of banks for Islamic banking. The other class of banking is more or less the same. The only object of banks in Pakistan, foreign or local, is just to make money.
Our Governor of State Bank says that more and more foreign banks are coming to Pakistan and at the end of this year 50% of this service shall be owned by foreigners. Pakistanis are one of the best bankers all over the globe.
The profits earned here by the banks are high due to a very high rate of "Spread" being enjoyed by them with the consent of the Central Bank. The profit in banking is so high that foreign banks will get back their capital invested here within 2.5 to 3 years. After this, they will start remitting the profits to their head offices located abroad.
We do not need foreign banks. As per a report on the credit extended to the private sector by our banking industry has decreased by 22% due to high rate of mark-up as compared to the corresponding period of last year.
Today the banks have the largest "Spread" in the history of Pakistan. On an average, local banks are enjoying a spread of 7.46% while the foreign banks have 8.42%. Our Governor says that the mark up is to be determined by the "forces of demand and supply". In market economies of the world, they have Central Banks to guard the interests of the consumers, including industries and trade. Ours is a developing country and there is dire need for regulating the monetary policy which has failed to deliver.
In mid 80's the same expensive monetary policy was followed, the interest rate being as high as 22%. The result was a lot of bad loans, shut downs in industries and slowing of economy. 200 textile mills have been closed down. Today, units are being relocated to Dubai and Bangladesh. What for the economic managers of the country are waiting?