Financial Liberalization Of Pakistan Essay

873 words - 3 pages

In 1974 all banks of the country were nationalized, with the objective of providing the capital for top priority projects or investments, and to ensure the depositor's capital safety. Although this step was taken for the socio-economic benefits, however, the required results could not be obtained. And under the public sector's ownership and supervision the banking sector proved inefficient (Haque 1997), which leads the lower saving and investment, so as a result economic growth decreased (khan and khan 2007). Besides other problems, the lower range of financial products and unavailability of consumer and mortgage financing also included in nationalization system (Haque 1997, Limmi 2002). So, to prevent from financial crises and for efficient working of financial markets, a strong and effective supervisory system was necessary (Caprio and Klingebial 1997).
So, after a decade of nationalization the need for some change in the financial system was felt. It was fore step for new reforms, and at the end of 1980s the reform program was initiated. However, the major reforms came in 1990s. In 1990 seven domestic and seventeen foreign banks were working in Pakistan, these seven banks have public sector ownership with a broad network of branches, and more than 90 percent assets of banking sector (as shown in Table: ). In that period there is not a single private bank, while seventeen foreign banks had only forty-five branches and less than 8 percent of total banking assets, their major concern was to deal international trade. (SBP)

In 1990 there were three regulatory bodies i) State Bank of Pakistan; the major tasks performed by SBP are conducting the monetary policy, issue directives to commercial banks regarding reserve requirement and credit etc. In addition, the pursuing of exchange rate also the responsibility of SBP, and finally the supervision of commercial banks, however, in the presence of Pakistan Banking Council (PBC) its role was limited in this regard. It performed his functions under the SBP Act, 1956. ii) Pakistan Banking Council (PBC); established under the Banks (Nationalization) Act, 1974. Beside other objectives the main objective was participate in nationalization system, monitor the performance of nationalized banks and ensure the complete safety to depositors regarding their capital. iii) Corporate Law Authority (CLA); the main objective of his established was the supervision of capital market. It established in 1948 and operate under the ministry of finance. Major responsibilities include grant permission to firms for registration in stock exchange and collect their annual reports. And supervise the firm's especially in new share issuance and dividend declaration matters according to imposed dates.
The basic objective of financial reforms was to improve the inefficiencies of the financial system and boost up the economic growth (Faruqi 2007). In 1996, the IMF, World Bank...

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