Effect of Global Financial Crisis on Banks in Pakistan

Topics: Bank, Financial market, Economics Pages: 14 (3808 words) Published: November 26, 2012

|1.1 |Introduction | |1.2 |Evolution and Present Status | |1.2.1 |Pakistan’s Banking Sector and Foreign Banks | |1.3 |Statement of Problem | |1.4 |Significance of Study | |1.5 |Scope of the Study | |1.6 |Delimitations | | | |


The financial crisis, which has been developing at Wall Street, has got people worried in developing countries around the world. The stock exchanges, in developing countries have crashed and things look bleak for the financial markets. The people are drawing parallels with the Great Depression of 1929, but this time the world economy seems far more reliant and countries are far more intertwined with each other.

Hit by an unprecedented series of multiple events and shocks, the Global Financial System is in a state of deep distress. One after another, large global banks have faced extensive losses, some were subjected to runs, others wrapped up their business, while yet others went for bail outs, mergers or other forms of restructuring. Stock markets tumbled, indices declined and their market capitalization was severely eroded. The financial crisis, triggered by an isolated problem of subprime mortgages and other alternative investment vehicles which constituted only a small proportion of global financial assets, first hit one sector of the economy i.e. housing, and has now transmitted its contagion effect across all segments of financial markets and institutions, with spillover effects into the real sector. The global economy is now witnessing a significant slowdown after a sustained period of growth. What was perceived initially as purely liquidity? crunch in advanced financial markets has now turned into a solvency crisis.

The depth and breadth of the financial crisis is yet not known. The crisis has generated instability by speculative trade, which has far-reaching implications around the globe. The crisis has the potential to disrupt the very foundations of the international monetary system. The situation is not limited to the meltdown of financial markets, the real economy at the national and international level, its institutions; and its productive structures are also in difficulty. This financial meltdown inevitably, backlashes on consumer markets, the housing market, and more broadly on the process of investment in the production of goods and services.

1.2Evolution and Present Status
Pakistan is living in a highly integrated world and a major turmoil of this magnitude and would definitely create certain implications for Pakistan’s economy. Pakistan already reeling from high food and fuel prices could face adverse consequences of the global financial crisis. The country’s economy is already confronted with worst kind of macroeconomic imbalances and obviously need financing desperately. Pakistan’s economic growth has slowed down and the ripple effects of this financial crisis may or may not hit with same intensity or severity as it is doing to the developed world, but still there are various channels through which the crisis may hit Pakistan economy.

The crisis affected area, United States and Europe, hold a fundamental value for Pakistan’s economy. The financial turmoil is more then likely to affect Europe, Japan and North...
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