Banking Industry of Pakistan: Performances and Constrains

Topics: Bank, Central bank, Fractional-reserve banking Pages: 24 (6454 words) Published: June 27, 2012
Mehmood-Ul-Hassan Khan
for Media Monitors Network (MMN) – July 24, 2004 -  
Banking is one of the most sensitive businesses all over the world. Banks play very important role in the economy of a country and Pakistan is no exemption. Banks are custodian to the assets of the general masses. The banking sector plays a significant role in a contemporary world of money and economy. It influences and facilitates many different but integrated economic activities like resources mobilization, poverty elimination, production and distribution of public finance. It is purchase of car or building of a home banks are always there to serve you better. It is play ground or any educational or healthy societal activity the money of banks nurture them. It is an industrial project or agricultural development of the country the sponsor-ship of banks is very much involved. Banks play very positive and important role in the overall economic development of the country. Pakistan has a well-developed banking system, which consists of a wide variety of institutions ranging from a central bank to commercial banks and to specialized agencies to cater for special requirements of specific sectors. The country started without any worthwhile banking network in 1947 but witnessed phenomenal growth in the first two decades. By 1970, it had acquired a flourishing banking sector. Central Banking: Linchpin Of Country’s Banking System

SBP acts as a nucleolus in the financial system of the country. It is the linchpin of country’s banking system. To day, a central bank is the central arch of the monetary and fiscal framework in many countries of the world and its activities are essential for the proper functioning of the economy and critical for the fiscal operations of the government and Pakistan’s banking system is no exemption. Will Roger (1992) described a central bank as one of the great inventions of the 20th century. State Bank of Pakistan was established on the first of July 1948 under the SBP order 1948 as the central bank of the country.  

At the start of the century the world had only 18 central banks but today there are more than 173. Initially central banks did not conduct monetary policy or support the banking system. The world’s oldest central bank was established in Sweden in 1668 largely as vehicle to finance military spending. The Bank of England was created in 1694 to finance the expenditure of war. The United States managed without a central bank until early this century. Private banks used to issue own notes and coins. Due to the non-existence of a central bank in USA, banking crises were very common.  

No central bank is completely independent in the world. Before the establishment of European Central Bank, the German Bundesbank was the most independent central bank of the world. In the nineteenth century the philosophy of laissez faire dominated, and central banks enjoyed greater latitude compared with earlier and later times. World War I brought that freedom to an abrupt end. After the war there was a desire to return to prewar status, but movement toward this end was precluded by the Great Depression, World War II, and then permanently by the rise of the managed economy. Only in recent years have the trend begun to reverse. The present structure, operation and authority of the SBP originate from the SBP Act 1956. State Bank of Pakistan is entrusted with the prosperity, stability, and growth of the domestic economy. It is sole bank of issue, holder of gold and currency reserves, banker to the government, lender of the last resort to commercial banks and supervisor of the others banks. It is also responsible for National Credit Policy.  

In October 1993, complete autonomy was granted to SBP. It was the milestone in the history of SBP. Main reason of its full autonomy is to assume increased independent inputs in macro...
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