Dr. Muhammad Anwar Hassan, Vice Chancellor, Preston University, Mr. Muhammad Humayun Khan, Chief Manager, State Bank of Pakistan, SBP BSC (Bank) Peshawar, Mr. Rashid Qazi, Vice President, PICIC Commercial Bank Ltd. Peshawar, Mr. Badar Hussain, Area Head North, MCB Peshawar, Mr. Tabraiz Hassan Butt, Regional Business/Operational Chief Peshawar, Fellow Bankers, Distinguished Ladies and Gentlemen! First of all I would like to congratulate the administration of Preston University Peshawar for organizing this Seminar. It was the earlier part of the 1990s when the inherent weaknesses of the banking structure were recognized and a comprehensive reform process in the banking industry was initiated. The underlying objectives of the initiatives were to ensure and create a level-playing-field environment of competition in the market and to strengthen the governance and supervision of the financial institutions. In fact, the reforms were targeted to adopt a market-based indirect system of monetary, exchange and credit management to ensure the efficient allocation of financial resources. Today, 15 years later, it would no longer be an exaggeration but a fair statement that the landscape of the banking system in Pakistan has changed. The country has made a significant progress in implementing financial sector reforms and has achieved a more competitive market structure with expanding market share of private sector banks. Moreover, significant gains have also been achieved in the form of better supervision and regulation of financial markets and institutions. Due to prudent
regulatory measures, the local banking industry is now considerably resilient in absorbing adverse shocks, both internal and external. Please note that this progress does in no way means the end of reforms, but provides great encouragement to capture and sustain the current momentum of progress. Time is ripe for further strengthening and reshaping of the reform process. This is not only to capitalize on the achieved robustness of the banking industry, but also to integrate it with the global economy deep into the 21st century. The 21st century challenges for the Pakistani banking industry are broadly of internal and external nature. Internal challenges are the one that stem from within the banking industry and carry a profound effect on the long run robustness of the banking industry. External challenges are somewhat exogenous, being generated from the external environment of the banking industry, and require shrewd management for adaptability. I would like to start with the internal challenges first. Technical Expertise: Acquiring the technical expertise should be the focus of future human resource management given the changing paradigm of banking sector regulations. For instance, the implementation of the new Capital Accord (Basel II) whereby capital adequacy requirements have been made more risk-oriented by linking capital to operational risk and changing the risk measurement approaches for credit and market risks. However, its implementation is not going to be an easy task especially in countries (including Pakistan) where risk management systems are at nascent stage. This is because of one of the prerequisite for Basel II implementation which requires that the banking institutions should have a robust risk management
setup which is capable of effectively managing all major risks that an institution is exposed to. Similarly, the banking institutions are also required to carry out stress testing, a technique used around the globe by financial institutions to assess risk exposures across the institution and to estimate the changes in the value of the portfolio, if exposed to various risk factors. Initially, although, SBP has advised banks to carry out the simple ‘sensitivity analysis’ keeping in the view the varying levels of skill and available resources...