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The history of affluence of Pakistan's banking sector, is inexplicably tied to the prestige of the founding banking houses on I.I. Chundrigar Road and the Karachi Stock Exchange. [1] Banking in Pakistan is a continuation of the legacies of the Mughal Empire [2] and the Great Families of Pakistan. The origins of Pakistan's banking and monetary financial system are in the roots of Muhammad Ali Jinnah's speech, "The opening of the State Bank of Pakistan symbolizes the sovereignty of our State in the financial sphere". [3]
Sindh's financial sector with its roots in I.I.Chundrigar_Road has for many years ranked in top indices and has led to the amalgamation of indices into the Pakistani Stock Exchange. Pakistan's banking industry includes many a prominent names such as Bestway Group Limited, Allied Bank Limited, Askari Bank, MCB Bank Limited, Habib Bank Limited, Habib Metro, Faysal Bank, National Bank of Pakistan, State Bank of Pakistan , Bank Alfalah. Pakistan Stock Exchange was established on September 18, 1947 and was formally incorporated on March 10, 1949 under the name of Karachi Stock Exchange, as a Company limited by Guarantee. In October 1970, a second stock exchange was established in Lahore to meet the stock trading needs of the provincial metropolis. In October 1989, Islamabad Stock Exchange was established to cater to the investors of the northern parts of the country. Because the three exchanges had separate management, trading interfaces, indices, and had no mutualized structure, therefore the Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012 was promulgated by the Government of Pakistan which ultimately resulted in the three exchanges integrating their operations effective January 11, 2016 under the new name ‘Pakistan Stock Exchange Limited’ (PSX) [4] State Bank of Pakistan. [5]
Over the years Pakistan has developed an excellent infrastructure of financial services, with many banks offering many innovative products as well prestigious services. According to Fitch Ratings, the Pakistani banking sector has benefited resilient and positive with a growth and value driven mind set. Improving performances, due to underlying factors such as productivity growth, education and financial achievements, and international partnership have provided for a solid foundation for growth. [6]
Pakistan implemented economic reforms in the late 1990s. [7] These reforms included a $250 million World Bank loan for banking reform, which helped in loan recovery and reducing operational losses. [7] Specialized banking courts were established to expedite the processing of pending loan recovery cases. [7] Professional management structures and independent boards were introduced, resulting in workforce downsizing and branch closures to reduce costs. [7] The State Bank of Pakistan gained autonomy, and United Bank Limited, which had collapsed, was recapitalized under central bank management. [7]
In 1997, Pakistan initiated banking reforms to address long-standing issues within major state-owned banks, such as the National Bank of Pakistan (NBP), and United Bank Limited (UBL). [7] These banks, which were nationalized in the 1970s, faced problems such as bureaucratic corruption, politically motivated lending, and inefficiencies, leading to significant financial losses and overstaffing. [7]
The pace of these reforms slowed in 1998 under Prime Minister Nawaz Sharif's administration and remained stagnant until Pervez Musharraf's government revitalized them around 2000. [7] This revival brought in professional managers from international banks, leading to improved operational efficiency and financial health. With the support of an additional $300 million World Bank loan, this phase focused on restructuring and privatization. [7]
In 2018, there were 50.565 million bank accounts in Pakistan for its population of 207.77 million, resulting in a penetration rate of 24.34%. There were 15,053 bank branches, 14,148 ATMs, and 53,269 POS machines active in the country.
On 28 April 2022, the Federal Shariat Court (FSC) announced a verdict in a case on Riba, declaring all the provisions of the Interest Act 1839, which facilitated interest, unlawful. The FSC also declared the prevailing interest-based banking system to be against Shariah. The FSC ruled that the federal government and provincial governments must amend relevant laws and issued directives that Pakistan's banking system should be free of interest by December 2027.
As of Sep, 2020, Islamic banking industry (IBI) assets and deposits of the overall banking industry stood at 16.0 percent and 17.3 percent, respectively. [8]
As of Sep, 2020, the infrastructure of IBI in Pakistan consists of 22 Islamic banking institutions (IBIs), 5 full-fledged Islamic banks (IBs), and 17 conventional banks with standalone Islamic banking branches (IBBs). [8]
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