Food+Technology Pakistan 2010

Pakistan’s financial system grew significantly in the last few years. At present, total financial assets have reached $175 billion (110% of GDP). The banking system constitutes 95% of the total assets of financial institutions and bank shares constitute 40% of the stock market capitalization. Among different segments of financial markets, banking sector has gained dynamism, profitability, respectability and strength. Deposit base rose to $60 billion and advances to $47 billion. Supported by growing financial intermediation process, banks aggregate profitability rose to $1.8 billion. Recapitalization and prudent lending has lowered net non-performing loans (NPLs) to below one percent of assets. Banks capitalization and quality of assets have helped raise the risk weighted capital adequacy ratio to 13.2 percent.
These achievements are impressive, however:
1. A large segment of population and geography is still under served from the existing financial markets and this gap will grow as Pakistan’s population rises further.
2. The financial system has to gear itself to meet the growing requirements of the economy in particular infrastructure which conservatively requires almost $150 billion over next few years;
3. New types of risks have emerged as banks acquired different types of nonbank financial (NBF) institutions including investment finance, brokerage, asset management and insurance companies etc. Some of these have been merged into the banks while others remain as subsidiaries. Banks are beginning to cross-sell different financial products through their branch networks. This is a market driven development but does pose systemic risks and supervisory challenges. Some banks have also acquired strategic and non strategic stakes in nonfinancial companies. These create a different set of risks that will need to be thought through and dealt with carefully.
4. Financial sector needs to be diversified as bulk of the country’s financing requirements is currently met by the banks. While market capitalization of stock market has increased significantly, new issuance of capital is small. Similarly, the debt markets constitute largely of government securities, while the corporate paper market is limited.
5. Finally, within regional context Pakistan’s financial system despite its growth is still small. For instance, the financial system of other Asian emerging financial market countries twice or three times larger in relative terms and the Gulf States have now geared themselves into regional financial hubs.