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Review of Structural Reforms in Financial Sector of Pakistan
1.
2. An efficient financial system is essential to facilitate economic
transactions.
Financial Sector Development and Economic Development are
inter-related.
Well functioning and efficient financial sector improves the living
standards of population.
Improves overall economic efficiency through the efficient
allocation of resources.
Improves economic growth and the stability of the economy.
3. STRUCTURAL ADJUSTMENT PROGRAMS (SAP)
Started in early 1990’s.
It includes
Fiscal consolidation.
Reforms of the trade and exchange rate systems.
Price liberalization.
Deregulation of financial sector activities.
6. Efforts began in earnest after the creation of
Privatization Commission (PC)
Privatization of state owned enterprises;
Banks
Power utilities
Telecommunications
167 transactions
Revenue of over Rs. 476,212.2million
7.
8. Banking sector has the highest share with 33 %.
Telecom has 28 % share.
Energy and industrial sector has 20 % and 19 %
respectively.
9. All the Nationalized Commercial Banks except one
has been privatized.
The asset share of government in nationalized banks
have reduced from 100 percent to less than 20 %
Private sector now owns 80 % of the banking assets.
10. As a first step of privatization of banks twenty
three banks were allowed to work.
Ten banks belongs to domestic sector and rests
were international/foreign banks.
11. Large segments of the banking system have been
transferred to private sector.
Private sector owns and operates most of the
banking sector.
12. Entrusting the directors/managers with responsibilities.
Improving economic efficiency and growth.
Prevents mismanagement and infuses discipline.
Ensure transparency and accountability
Protects the depositors' interests
Brings change in the organizational culture
13. ICAP has drafted “Code of Corporate Governance”
It addresses the national requirements for good
governance practices.
In March 2002, the SEC directed the stock exchanges
to incorporate the Code.
The listing regulations were amended to include the
recommendations of the Code
14. Setting up foreign exchange companies in the private sector.
Allowing acquire of equity abroad.
No barriers to entry and exit of Foreign registered investors
Foreign exchange accounts in domestic banks were allowed for both
residents as well as non-residents.
Foreign registered investors can bring in and take back their capital,
profits etc without any prior approval.
15. FDI started to increase.
It has started to decrease over the
years due to
• Global economic crisis,
• Declining security situation
•The flood situation.
16. FDI had its up and downs until late 1990’s.
It started to flourish in early 2000.
Over the years due to global economic crises and
security situation it started to fall.
18. It is an established financing product of mature
economies having the following types.
Personal loans: payment of goods, services and
expenses
Auto loans: to purchase a vehicle for personal use
Housing Finance: for purchase of land plus
construction.
Credit Cards: include charge cards, debit cards,
Stored Value Cards (SVC), and Balance Transfer
Facility (BTF)
19.
20. 1. The financial liberalization process led
to the creation of a banking system owned by
the private sector.
free allocation of resources as per market
based mechanism
2. The easy monetary policy of the central bank
providing customers with financing options at low rates
to meet demand.
3. The influx of liquidity in the banking sector
motivated banks to diversify and expand their earni
ngs
21. The State Bank of Pakistan has given a big boost
to consumer financing.
Middle income groups can now afford to purchase
on installment basis.
This has given a large stimulus to the domestic
manufacturing of these products.
Bank’s consumer finance share in overall credit
of the banking system had risen to 3.8 percent.
22. Banks now offer a wide range of products under
the consumer finance umbrella.
Personal loans, auto loans, credit cards and
mortgage finance are few of them.
Composition and growth of these products in the
last few years has been very high.
23. Government has restructured the key support institutions
such as SMEDA and SME Bank.
They have been established to provide leadership in
developing new products such as program loans, new credit
appraisal and documentation techniques.
the SBP is also contemplating to set up Credit Information
Bureau in the private sector for collection/compilation of
data on the credit history of SMEs
Benefits Landless labor and poor women in the rural areas
The lending and deposit rates upward movement.
24. Program lending is the most appropriate method
to assist the SME financing needs.
Small and medium entrepreneurs are expanding
their fabrication and manufacturing capacities
and upgrading technology
25. SME sector contribution towards GDP has
increased over the years.
26. Simplification of tax laws and procedures
Introduction of universal self assessment system
Intelligent use of IT tools.
Human resource development and Business Process
reengineering.
27. Banking sector is one of 7 major taxpaying
sectors
Reduction in the corporate tax rate on banks
from 58 percent to 35 percent
Banks have earned about $ 1 billion of profits
Such reforms has resulted in the increase in
collection of taxes over the years.
28. Is a powerful policy instrument
Interest rates directly affect business conditions and economic
activities
Before financial reforms, interest rates were set administratively
Liberalization of interest rate by removing caps and ceilings on
deposits and lending rates.
The current interest structure of banks is market determined
29. The current interest structure of banks is market
determined
SBP has removed all kinds of interest rate
controls.
30. Macroeconomic stability
A greater degree of consolidation
Prudent regulatory and supervisory framework
Maturity and reorientation of financial industry
Diversified and competitive financial system
Strong corporate governance