Professional Documents
Culture Documents
Banking
Submitted By: Sarah Umar (M08BBA001) Hafsa Anwar (M08BBA024) Dania Dilshad (M08BBA041) Marreum Siddiq (M08BBA054) Iqra Shaukat (M08BBA060) BBA(Hons.) Banking & Finance 5th Semester (2008-2012) Hailey College of Banking & Finance University of the Punjab
Table of contents
Acknowledgement ...................................................................................................... 3 Meaning of bank ......................................................................................................... 4 Introduction & History of Banking in Pakistan ............................................................. 4 Establishment of State Bank of Pakistan .................................................................... 5 Banks in Pakistan ....................................................................................................... 5 Banking organization in Pakistan ................................................................................ 7 Changes introduced in banking system ...................................................................... 7 Economic environment Of Pakistans banking sector ................................................. 8 Technological advancement in banking sector ........................................................... 9 Ways to improve commercial banking in Pakistan.................................................... 11 Role of development financial institutions ................................................................ 12 Current performance of Pakistans banking industry:. .............................................. 14 Contribution towards Pak-Economy ........................................................................ 15 SWOT Analysis: ....................................................................................................... 16 References: .............................................................................................................. 18
Macroeconomics
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Acknowledgement
All acclamation to Allah who has empowered and enabled us to complete the task successfully. First of all we would like to thank Allah Almighty who really help us in every problem during the project. we would like to express my sincere and humble gratitude to Almighty whose Blessings, help and guidance has been a real source of all our achievements in our life. We would like to admit that we completed this project due to parents who always pray for our success. We also wish to express our appreciation to our respected teacher
Macroeconomics
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Meaning of bank
The word Bank is derived from the Italian word BANCO, which means a table or a counter. In the opinion of the scholars of banking, the reason why this word was given to the banking business was that when the trade and the business of exchange of money was flourishing in Italy, the money changers used the wooden benches to carry out their business.
Before the creation of country, the role of Muslims of the areas which were later included in Pakistan was of no significance due to their restricted participation in the banking sector. There was only a small banks namely Australasia Bank having a few branches in Lahore. In 1942, the Australasia bank was housed in a garage of a trader of Lahore who used to trade at a small scale with Australia during that period. There was only one Bank which was run by the Muslims of the sub-continent was Habib Bank. It was established in 1941. At that time Quaid-e-Azam Mohammad Ali Jinnah expressed his desire that another Muslim bank also be established in Calcutta which came into reality when Adamjee established Muslim Commercial Bank a few months before the creation of Pakistan in Calcutta. When Pakistan came in to being The Habib Bank shifted its Headquarters from India to Karachi. A few of Habib Bank's branches were already in operation in Pakistan. The Muslim Commercial Bank also moved its headquarters from Calcutta to Dhaka and later on to Karachi. At the time of independence, another small bank namely Bank of Bahawalpur also started business from Bahawalpur from December 1947. Before independence, the financial sector was in the hands of foreign banks some of them were British by origin. At the time of independence, two major banks including Punjab National Bank at Lahore and Comila Banking Corporation were working in the then East Pakistan. This trend was so obvious that the total number of Macroeconomics Page 4
Macroeconomics Assignment: Banking bank offices between June 30, 1918 and August 14, 1947 were reduced from 631 to 195 only.
Banks in Pakistan
Nationalized scheduled banks
y y y y
National Bank of Pakistan The Bank of Punjab The Bank Of Khyber The Sindh Bank
Specialized banks
y y y
Pak China Investment Company Limited Pak Kuwait Investment Company Limited Pak Libya Holding Company Limited Pak Iran Joint Investment Company Limited Pak-Oman Investment Company Limited Saudi Pak Industrial and Agricultural Investment Company Limited House Building Finance Corporation Investment Corporation of Pakistan Pak Brunei Investment Company Limited
Macroeconomics
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Commercial banks
y y y y y y y y y
Allied Bank Limited Bank Alfalah Habib Bank Limited Bank AL Habib Standard Chartered Bank Limited Citi Bank Limited United Bank Limited Askari Commercial Bank MCB Bank Limited
First Credit & Discount Corp Limited National Discounting Services Limited
Asian Housing Finance Limited Citibank Housing Finance Company Limited House Building Finance Corporation International Housing Finance Limited
Micro Finance Bank Limited The First Micro Finance Bank Limited Khushali Bank Limited Karakuram Bank Network Micro Finance Bank Pak Oman Micro Finance Bank Rozgar Micro Finance Bank, Karachi Tameer Microfinance Bank Limited Kashf Microfinance Bank Limited
Islamic banks
y y y y y y
Al-Baraka Islamic Bank (Merged into Al Baraka Bank ) Bank Islami Pakistan Limited Dubai Islamic Bank Pakistan limited Dawood Islamic Bank Limited Emirates Global Islamic Bank Limited (Merged into Al Baraka Bank (Pakistan) Limited) Meezan Bank Limited- Premier Islamic Bank In Pakistan
Macroeconomics
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Macroeconomics
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Macroeconomics Assignment: Banking Many big industrial groups set up their own banks. The new banking sector reforms have also stripped the government of its powers to interfere in a banks operations. All such powers now rest with the SBP only, thereby significantly reducing political influence in financial institutions. After the change the SBP has taken a number of steps to introduce professional management in the nationalized banks. The strategy of the SBP is to, first improve the quality of new loans and then to tackle the non-performing loans problems. All nationalized banks have been asked to curtail their overheads, especially the head counts. Professionals from the private sector have been appointed as Presidents to improve the health of nationalized banks and make them more attractive for privatization.
Macroeconomics
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Macroeconomics Assignment: Banking What lends confidence to bankers that are fast expanding their stakes and interest in Pakistan is the (i) high and sustainable economic growth that the country is set on; real GDP in the past 2 years grew by 8.6% and 6.6% and is now set to register another 7% growth; (ii) Real consumption expenditure is on the rise and leading the demand growth, boosted by doubling of per capita incomes to $850, a fourfold increase in remittances over few years, rising industrial capacities for consumer durables, automobiles, etc. and growing role of consumer financing and personal loans in meeting the demand for Consumer goods. (iii) In recent years, investment spending has gained substantial momentum and will be rising further as the Government and private sector launch and implement large infrastructure projects. The Government has plans to add 5000 MW new power capacities in private sector along with a number of hydral projects, highways and port infrastructure, while catering for the development of large urban infrastructure to upgrade large cities (iv) foreign direct and portfolio flows is at an all time high and is expected to further grow given the economic potential and high returns on equity in both corporate and banking sectors.
Macroeconomics
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Macroeconomics Assignment: Banking Introduced in the early 80s, telephone banking allows customers to access and administer their accounts using a handset or keyboard attached to a phone line. The internet also provides individuals with another means to administer their bank accounts. It was introduced in 1994, internet banking enhanced and developed the service already provided by phone lines. It allowed customers to conduct tasks such as fund transfer, investment, and electronic bill payment and complete applications for other financial features such as loans and credit cards. It is though the number of internet users who bank online now exceeds 50%.
CIB Online
Another project, which was made successful with the collaboration of ISD and the Pakistan Banking Association (PBA), is CIB (Credit Information Bureau) Online. Macroeconomics Page 10
IT Security:
ISD has started work on various IT related Security aspects at Banking sector. This covers: IT Risk Management IT Security Policies (drafting, implementing, monitoring, revaluating and revising) Disaster Recovery Site Other security implementation and enhancement projects
Network Support
This includes Critical Services monitoring, Routine Networking tasks, end user support, Network Management Station installations, LAN support and Support for Network development team deliverables. Besides this ISD provides Network support for various other related projects.
Macroeconomics
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Macroeconomics Assignment: Banking Of the DNBs, both MCB and Allied Bank have managed to show strong performance after privatization. To reduce costs, it is also required to decide for closing down of its unprofitable branches and redundant workers must be offered golden hand-shakes.
Macroeconomics
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Macroeconomics Assignment: Banking NDFC can be ranked first in the DFIs. It was set up by the Federal Government in 1973 for the purpose of lending to the public sector and since 1980 also to the private sector. Apart from its traditional activities of providing loans, advances and lease financing on a short, medium and long-term basis and accepting deposits of fixed maturities, the NDFC is now engaged in bridge financing, trade financing and , through its merchant banking division, in underwriting, equity investment, bond floatation and financial advisory services. With the Governments assistance, it is also involved in raising loans in foreign currency for infrastructural and developmental projects. NDFC continues to play a leading role in development and the financing of infrastructure to facilitate industrial development (e.g. in the oil and gas sectors, under the private energy financing initiatives). PICIC was incorporated in 1957 as a medium through which financial and other assistance could be provided to the private industrial sector of Pakistan. Its objectives are: to stimulate the development of the country by providing finance for the establishment of new industries as well as for the balancing, modernization and expansion of existing industries in the private sector; to assist in broadening the base of industrial ownership in the country, thereby developing the stock market; and to encourage the establishment of viable projects in under- developed regions of the country. The current activities of PICIC comprise: medium and long term lending, in both domestic and foreign currencies, generally for the acquisition of fixed assets; the provision of loans for working capital; the provisions of underwriting assistance; equity finance; industrial promotion; the provision of guidance and counseling service to clients. IDBP succeeded the Pakistan Industrial Finance Corporation in 1961 to promote small and medium-sized industrial enterprises in the private sector by way of providing term loans for the establishment of new industrial units and to meet the expansion, modernization and replacement needs to existing industrial units. Today nearly 90% share capital is held by the Federal Government and the balance by government-controlled financial institutions or Provincial Governments. IDBP give priority to the financing of small projects, especially agricultural, export-based or engineering. The dispersal of industrial in less-developed regions, and the promotion of new industrial capacity consistent with the financial targets and socio-economic objective established in the five year plans.
BEL established in 1980 with the principal objective of accelerating the pace of
industrial development, primarily in the private and mixed sectors of the economy. It was first sponsored by the SBP and in 1996 government privatized it by selling its 26% shareholding to LTV Consortium. New management of a privatized financial institution ensuring to provide financial facilities to enterprises in the private sector through equity participation, and profit and loss shares modes of financing. Macroeconomics Page 13
Pakistans banking sector has remained remarkably strong and resilient, despite facing pressures emanating from weakening macroeconomic environment since late 2007. Pakistans economy witnessed a noticeable improvement in the macroeconomic indicators during (2009-2010 ) as the economy grew at a rate of 4.1 percent compared with only 1.2 percent in the preceding year. There was substantial decline in annual inflation and current account deficit. Foreign exchange reserves also rose to historic highs during the year. Local and foreign banks witnessed accelerated rise in advances, deposits and investments in the final quarter of 2010, leading to surprise earnings in quarterly results. The State Bank of Pakistan statistics showed the advances, deposits and investments of the banks grew by 6.9 percent, 15.8 percent, and 9.7 percent respectively in 4Q 2010 with calendar year 2010 growth totaling to 6.8 percent, 18.5 percent and 27.8 percent respectively. The accelerated growth in the asset base of banks, leading to the full year growth to 13.4 percent to reach Rs 6.8 trillion or $ 79 billion. Advances and investments led the way, as both have registered sharp growth in 4Q and up 6.9 percent and 15.5 percent to reach Rs 3.5 trillion or $ 40.8 billion and Rs 2.1 trillion or $ 24.5 billion respectively. The credit to the private sector has also shown an encouraging trend with Rs 113 billion disbursed so far in the current FY11, particularly on account of commodity financing which has further been aided by high commodity prices. Deposits rose by 9.7 percent to record an 18.5 percent rise in the calendar year and reach Rs 5.1 trillion $ 59.8 billion. The increased liquidity in the system is due to high monetary aggregate (M2) growth, pushed up by high government borrowing and favorable BOP. Further, with 6 month KIBOR at 13.19 percent up 84bps on quarterly basis and 80bps on a yearly in 4Q. The net Interest Margins are likely to head north and keep reported earnings strong.The fiscal deficit bounced back to 6.3 percent of GDP in FY10, i.e., 1.1 percentage points higher than in the previous year. FY10 fiscal performance was characterized by continuing expansion in fiscal and quasi-fiscal operations that crowded out and otherwise undermined private sector activities, supported the persistence of double-digit inflation, and increased the total public debt and liabilities substantially, from 68.7 percent of GDP in FY09 to 69.5 percent in FY10. Although the quarterly data usually comes in strong off take growth, the 4Q 2010 is highest since 2007. Investments, on the other hand continue to take up Macroeconomics Page 14
Macroeconomics Assignment: Banking increased share of liquidity generated via high deposits, more so after the discount rate hikes in 2H 2010; and returns earned from these remained an earnings booster for 4Q.However, the size of provisioning losses as industry wide expenses increased up to Rs 15.9 billion in 2010, which is bound to eat away profitability in some cases.
Referring to recent unprecedented floods in the country, it is predicted that the various FY11 macroeconomic targets have suffered a serious setback early into the year as large areas of the country were devastated by widespread rains and unprecedented floods. In this backdrop, GDP growth is likely to be between 2 percent to 3 percent in FY11, average annual inflation is expected to be 13.5 percent to 14.5 percent while the fiscal and current account deficits are likely to be between 5.0 percent to 6.0 percent of GDP, and between 3.0 percent to 4.0 percent of GDP. Furthermore, it projected that workers remittances are likely to stay between $9.5 billion to $10.5 billion while exports and imports are likely to be between $20 billion to $21 billion and $34 billion to $35 billion, respectively..
Macroeconomics
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Macroeconomics Assignment: Banking market share. Banking industry, in Pakistan, is currently under a wave of Mergers and Acquisitions (M & As). There are on average 3 M & As per year. 1. Public Sector Commercial Banks: National Bank of Pakistan, First Women Bank Limited, The Bank of Khyber, The Bank of Punjab 2. Local Private Banks: Askari Commercial Bank Limited, Bank Al-Falah Limited, Bank Al Habib Limited, Bolan Bank Limited, Faysal Bank Limited, PICIC Commercial Bank Limited, UBL, MCB, ABL, 3. Foreign Banks: ABN Amro Bank, Al Baraka Islamic Bank, American Express, CITI Bank, Deutsche Bank, Emirates Bank, IFIC, Hong Kong Shangai Banking Corporation, Standard Chartered Bank, etc.
SWOT Analysis:
SWOT analyses take into account the strengths, weaknesses, opportunities and threats face by a business, an organization or operation, in serving customers, stakeholders and their own employees. A SWOT analysis of the banking industry will list these four components and illustrate for executives and management the areas the industry is performing well and also the area where the performance is not so well. The SWOT also highlights the areas where there is opportunity to develop further and areas where there is potential to be hurt in the future.
Strengths
The "Strengths" portion of the banking industrys SWOT analysis is a list of the internal operational elements where the banking industry is succeeding or excelling. These elements need to refer to features the industry can control and has a direct power to change. The banking industry has the following strengthen points: y y y y The banking industrys has record-high recent annual returns. It has diversified investment portfolio offerings It has decreases its transaction and trading fees. An increase in the number of ATM machines.
The market share of banking industrys has also increase in recent year.
Weaknesses
The "Weaknesses" element of the banking industrys SWOT analysis is a list of the internal operational elements the banking industry needs to improve upon. These Macroeconomics Page 16
Macroeconomics Assignment: Banking elements need to refer to features the industry can control and has a direct power to change. The banking industry's weaknesses include high loan rate. y y y y Low bond credit ratings. An increased number of outstanding junk bonds. An increase in loan-sharking activity. An increased number of high-risk investment options.
Opportunities
The "Opportunities" part of the banking industrys SWOT analysis is a list of the external environmental elements the banking industry can potentially take advantage of in the near future or long-term. These external environmental elements should not reflect the internal components of the industry, but rather the factors or features outside the industrys control. The banking industrys opportunities include: y y y y y A growing economy. Banking deregulation. Increased client borrowing. An increase in the number of banks. An increase in the money supply. balances.
Threats
The "Threats" component of the banking industrys SWOT analysis is a list of the external environmental elements that can potentially harm the banking industry. These external environmental elements do not reflect the internal components of the industry, but the factors or features outside the industrys control. y y y y y The banking industrys threats could include: A declining economy, An increased banking regulations. Larger capital gains taxes. New high-risk investment vehicles or higher health care costs.
Its important to realize these examples are not black and white. For example, new high-risk investment vehicles are inherently a liability because they include increased risk, but depending on the financial stake and position, it could be an opportunity or threat. Macroeconomics Page 17
References:
y y y y y y Sbp.com.pk Google.com Wikipedia.org www.economywatch.com/world_economy/pakistan www.finance.gov.pk www.dawn.com/tag/pakistan-economy
Macroeconomics
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