KARACHI,November 2024: Innovation, financial inclusion, SME lending and forward-thinking banking regulations are key to boosting the efficiency of Pakistan’s banks, according to a new analysis by CERP and Alchemy Technologies, supported by the Pakistan Banks’ Association (PBA).
At the launch of Banking on our Banks: Aligning Growth with Development held in Karachi today, industry stakeholders highlighted the vital role of the banking sector in driving growth and development. While the sector has shown great improvements, it is important to move beyond measuring profitability and growth as the only relevant performance indicators for evaluating the competitiveness of our banks.
The growing performance disparity with regional counterparts, overdependence on specific economic sectors, regulatory constraints, and limited incentives for people to use formal banking channels create an environment that hinders innovation, limiting the growth potential of Pakistan’s banks.
Mr Jameel Ahmad, Governor State Bank of Pakistan, as the chief guest, stated, “Our banking sector is well positioned in terms of solvency, asset quality, and profitability to contribute to the economic growth and development of Pakistan by embracing technology and fostering innovation. While remaining focused on governance and risk management, we can enhance the capacity and resilience of our banking sector to serve all segments of the economy.”
Opening the event, Mr Zafar Masud, Chairman PBA said, “It is important to recognise that Pakistan’s banks operate in a challenging environment, with 52% of the undocumented economy and many sectors actively avoiding the tax net. Despite these challenges, the banking sector continues to contribute generously to the national exchequer and fiscal deficit, with a willingness to do even more through income-based taxes than the taxes on balance sheet like the ADR. This level of commitment is rare, especially in emerging economies like ours, and deserves recognition and applause.”
Banks are incentivized to lend within well-trodden paths, prioritizing uncompetitive sectors like energy, agriculture, logistics and textiles while ignoring industries with long-term potential. Absence of competition discourages new product development and the ability to take bets on newer sectors. Cumbersome approval processes and predictable returns make innovation a losing bet not just at the regulator but also within banking boardrooms.
“The truth is that changing rules doesn’t change behaviour, incentives do. With the right data and solutions, we can build a unified banking ecosystem ready to fuel Pakistan’s economic recovery,” said Maroof A. Syed, President and CEO of CERP.
The event also included panel discussions where the joint analysis was debated by Maheen Rahman, CEO, InfraZamin Pakistan, Ahmed Khan Bozai, Vice Chairman, PBA & Citi Country Officer, Citibank N. A.,Pakistan, Asif Ali Qureshi, CEO, UBL Funds and Mutaher Khan, Co-Founder, Data Darbar and a way forward was charted out by Shahid Mustafa, Co-Founder, Tameer Microfinance Bank & CEO, Pakistan Microfinance Investment Company (PMIC), Khursheed Kotwal Vice President, The Institute of Chartered Accountants of Pakistan and Atif Muhammad Ali, Chief Commercial Officer, Engro Fertilizers Ltd.
The event discussions highlighted regulatory challenges, the high costs associated with digitalization and the resulting overreliance on unprofitable sectors. However, with well-implemented and strategic reforms, these issues can be addressed, reducing frictional costs and enhancing banks’ long-term competitiveness.
“We need market-driven incentives, robust regulatory frameworks, forward-looking boards and a sandbox approach to experimentation. Otherwise, banks will continue to prioritize comfort lending over bold decisions necessary for economic transformation,” said Jawwad Farid, CEO at Alchemy Technologies and Professor of Practice at IBA.
To foster sustained growth, participation in the formal economy has to be incentivized. In order for banks to help small businesses to thrive, regulatory frameworks have to reconsider tax strategies. Banks, too, need to evolve their boards to be more diverse and supportive of new visions. All three sectors need each other to drive the reforms necessary to make Pakistan’s economy competitive and complex enough to withstand global challenges.
The event concluded with Mr. Muneer Kamal, CEO and Secretary General PBA, expressing his appreciation for CERP and Alchemy Technologies for spearheading this important dialogue. He also reaffirmed the sector’s commitment to stimulating economic activity and emphasized that PBA’s ongoing collaboration with the Ministry of Finance and the SBP on key development areas will eventually drive sustainable progress and promote long-term growth for Pakistan.
