Pakistan's nationalised banks are being privatised and are providing better service. They are also mounting a strong challenge to foreign banks.
Even though Pakistan's economy remains tangled in a web of low industrial activity, slack domestic investment and low GDP growth, structural reform is beginning to show results in some areas. The bloated and politicised nationalised banking industry has long been a drag on the financial sector and the economy as a whole but the effects of aggressive restructuring during the last two years are now making themselves felt in the broader economy. Indeed the financial sector as a whole has undergone a process of streamlining and consolidation, which promises to yield substantive macroeconomic gains in the future.
Perhaps the most obvious strides have been made by the three nationalised banks in the country, which are also the three biggest players in the banking industry; National Bank of Pakistan (NBP), Habib Bank Limited (HBL) and United Bank Limited (UBL) together control two-thirds of total deposits and credit in the country. These have now become formidable forces of competition for the traditionally more efficient foreign and private banks operating in the country. And with the strategic sale of UBL to a domestic banking group in June this year, as part of Islamabad's privatisation programme, the situation can only be expected to improve further. Among the gains, consumers and corporate customers have greater options to choose from. And the improved processes and cleaner balance sheets in these three banks has meant Pakistan's industry is now supported by a streamlined and reliable banking system.
Pakistan started restructuring its deeply troubled banks in 1997 and the process of reform has been bumpy and turbulent. NBP was formed in 1949 as a government-owned entity while HBL and UBL were taken over by the state during the mass nationalisation of the 1970s. Over the years a corrupt civil bureaucracy undermined the efficacy of these banks, as political considerations, which ruled lending and employment, led to huge losses, enormous inefficiency, and regressive functioning. Bad loans swelled at the three banks and they grew into unmanageable behemoths employing a total of 76,500 people and operating 4,800 branches nationwide and several hundred through overseas franchises as well. Even though the banks were fast approaching financial collapse, political interference continued in full swing.