PakistanNews
WB offers $300m for banking sector
By Nadeem Malik
Islamabad: The World Bank has approved $300 million for Pakistan to strengthen the regulatory capacity of the central bank to enhance transparency and prevent money laundering.
The Banking Sector Development Policy Project will support the development of an effective regulatory and supervisory capacity at the State Bank of Pakistan (SBP) through changes in banking regulations; enhancing transparency through greater public disclosure; and preventing possible use of the banking system for money laundering, the Bank said.
Pakistan initiated comprehensive banking sector reforms in 1997 with the help of multilateral institutions, as the financial sector entities were on the verge of bankruptcy. Political interference, overstaffing, weak regulatory framework and poor legal environment resulted in the shape of a huge stock of Non Performing Loans (NPLs), which threatened the stability of the system. However, the reform process, like introduction of risk-weighted capital system, and the directive to maintain capital at least 8 percent of risk-weighted assets, coupled with strengthening of the regulatory role of the central bank, improved the situation. "Pakistan has the most safe and sound banking system in South Asia due to far-reaching reforms in the financial sector during the last decade," says John Wall, World Bank's Country Director for Pakistan.
The project supports the completion of the third phase of the reform process initiated by Pakistan in the last decade. It will support the government towards improving sector governance and transparency through the privatization. The government privatized 51 percent stakes in United Bank Limited (UBL) to Abu Dhabi Group and Bestway Holdings for $208 million, Habib Bank Limited (HBL) to Aga Khan Foundation for $389 million, and 75 percent shares of Allied Bank Limited (ABL) to Ibrahim Group for Rs 14.2 billion. With the privatization of two of the three Nationalized Commercial Banks (NCBs), which accounted for nearly 25 percent of the system, and ABL transaction, nearly 80 percent of the country's banking sector assets are now in private hands.
Wall said the banking sector has undergone fundamental changes through a three phased reform programme. The reforms managed to address the root cause of the sector's problems and achieved a complete turnaround in the environment for banking in the country.
According to the State Bank of Pakistan (SBP) deposits of the banking sector grew by 20 percent (Rs 361 billion) from Rs 1.78 trillion at the end of 2003 to Rs 2.14 trillion at end-2004. In 2003 this growth was 17 percent. The growth in advances during this period was a hefty 36 percent or about Rs 420 billion, from Rs 1.17 trillion to Rs 1.59 trillion. The net stock of NPLs has also fallen to Rs 60 billion, due to heavy provisioning made by the banks over the last several years.
"Pakistan's banking system has really gone through a sea change" says Mudassir Khan, a Senior Financial Sector Specialist with the World Bank. Thanks to these reforms, the banking sector is more efficient and competitive and the access, quality and standards of services for the consumers have improved. “We would continue our support to see the transformation to a more equitable, transparent and a market based system and the one that plays its due role in development,” Mudassir said.
The loan, a $200 million from the International Bank for Reconstruction and Development (IBRD) is a fixed spread loan with an 8-year grace period and 20-year maturity. The credit, a $100 million from the International Development Association, the World Bank's concessionary arm, carries a 0.75 service fee payable in 35 years including a 10-year grace period.
ENDS.
