Commercial bank

?Introduction What is bank? Finance is the lifeblood of trade, commerce and industry. Now days, banking sector acts as the backbone of modern business. Development any country mainly depends upon the banking system. MODERN BANKING: – The banking, which was known in various forms and guises in The ancient civilization in various parts of the world did not Coincide with the emergence of the modern Banks. The Banking which had its roots in the flourished culture and had Lost its required effectiveness regained the strength with the Development the modern banking.

BANKING ORGANIZATION IN PAKISTAN: – Pakistan’s financial sector consists of Scheduled Commercial Banks, which include nationalized, foreign, and private banks; And Non-banking Financial Institutions (NBFIs), which include Development Finance Institutions (DFIs), Investment Bank Leasing companies, maharajas, and housing finance companies. HISTORY History of banking sector in Pakistan: – Prior to partition in 1947, branches of British banks dominated banking in Pakistan. The state Bank of Pakistan, the central bank, was formed after partition in 1948.

It assumed the supervisory and monetary policy powers of the state Bank of India. In the period of 60s to 70s the emergence of a number of specialized development finance institutions (Defies) such as industrial Development Bank of Pakistan (IDBP) and the agricultural development bank (ADB). These DFIs were either controlled directly by the state or through the SBP, and were intended to concentrate on specific priority sector lending. In 1947 the Government nationalized all domestic commercial banks.

The Pakistan Banking council was established, which assumed the role of a banking holding company but with limited supervisory powers. However, PBC was dissolved in 1977, leaving the SBP as the sole regulatory authority for banks and financial institutions in Pakistan. Nationalization of the banking sector led to pet projects. The branch network of NCBs also proliferated in an effort to provide banking services to all regions/territories of the country, often with disregard to the viability or feasibility of such expansion. Political influence on the banking in Pakistan: –

Political Situation in Pakistan: – Since the birth of Pakistan every government has appealed for national unity. Pakistan has run into crisis after crises, each graver than the preceding and unity has eluded us despite all the fervent appeals made. There must be serious reasons why crises should exist in abundance and not unity. Reserve Requirements: – A lot of banks didn’t have sufficient reserves. This is the portion of customer’s deposits that banks are required to keep on hand, in the cash vault or on deposit with the Federal Reserve.

These reserves help offset losses and assist with everyday banking transactions. When banks don’t have enough reserves, they cannot lend money until the reserves are replenished. Banks can borrow from other banks at the fed funds rate, which is 0. 25 percent. These types of loans are usually overnight borrowing. Credible commitments and investment: – Private investment increases in a cross-country panel when formal institutions (e. g. , term limits) do not constrain executives’ planning horizons.

This evidence is consistent with institutions that encourage reputation building checking opportunistic in centimes and extends from domestic public choice applications to an international political economy setting. In addition, investment exhibits a no monotonic relationship with a polity’s veto players. Political instability and its effect on Pakistan’s Economy and bank: – Overview of Pakistan’s Economy Pakistan was a very poor and predominantly agricultural country when it gained independence in 1947.

Pakistan’s average economic growth rate since independence has been higher than the average growth rate of the world economy during the period. Average annual real. ADVANTAGE OF POLITICAL INFULANCE ON BANKING SECTOR: – . Profit trends in banking industry: – Current key ratios indicate a striking upward trend in the banking industry with huge Banking spreads, particularly during the last half decade. Soaring loan losses: – Provision for loan losses is on the rise over the years. Troubled loans or non Performing advances are regarded as a cancer for banking industry.

It can be said that Quality loans are the ultimate goal for bankers today. Increasing diversity within the commercial banking industry; – Diversity is making the headway at a rapid speed pattern of operations, market focus, Advertising emphasis and use of information technology. Now the banks are inclined To build there organizations to look different from there market competitors by Pursuing divergent and distinctive strategies and by introducing novel products and Services through product differentiation. DISADVANTAGE OF POLITICAL INFULANCE ON BANKING SECTOR: –

Inability to Face Crisis: – Limited resources of the unit banks also restrict their ability to face financial crisis. These banks are not in a position to stand a sudden rush of withdrawals. Local Pressures: – Since unit banks are highly localized in their business, local pressures and interferences generally disrupt their normal functioning. Lack of Specialization: – Unit banks, because of their small size, are not able to introduce, and get advantages of, division of labor and specialization. Such banks cannot afford to employ highly trained and specialized staff.

Disparity in Interest Rates: – Since easy and cheap movement of does not exist under the unit banking system, interest rates vary considerably at different places. CONCLUSION: – In spite of the international economic crisis, continuing political rising militancy in Pakistan, the financial services sector has held up fairly well in the last year. Its future, however, remains tied to a measure political stability in the country that allows economic activity to occur unhindered. Let’s hope the nation’s political and ruling elites can find a peaceful way forward.