Performance of the Banking Sector

Abstract

Pakistan’s Economy is agrarian and its contribution to the GDP of the country is very significant. Pakistan has transformed its economy from low skilled agrarian to semi-industrialized economy. A lot of developments have taken place in its economy. Some of them are: • Liberalization of markets • Establishments of money and security markets • Development of banking sector and enhancing its role in the economic growth of the country. Due to these developments, the financial sector of Pakistan has become strong which supports the economic growth of the country. Pakistan consists of variety of financial institutions that include commercials banks, insurance companies, investments banks, stock exchanges etc. Bank are financial intermediaries that have deposits and they use these deposits for lending activities either through capital markets or through direct lending and in return of it banks earn interest that is its income (Consulate General of Switzerland 2011). The banking sector is an essential part of financial service industry of Pakistan and it has come across a lot of challenges over the period of 63 years. Now a days this sector is playing a very significant role in the growth of Pakistan’s economy. The banking system of Pakistan consists of two tier systems according to the State Bank of Pakistan Act that includes SBP, commercial banks, specialized banks, Islamic banks, Microfinance banks, Development finance institution (DFI). There were 36 commercial banks operating in Pakistan in 2010 that include 25 private banks, 7 foreign banks and 4 public sector banks. There was extraordinary growth in this sector 3 | P a g e during 2001-2003 and its deposits almost doubled during that period (Consulate General of Switzerland 2011) State Bank of Pakistan is the central bank that monitors and regulates all the financial institutions and is also responsible to ensure the interests of shareholders and investors.