Banking System In Pakistan

A banking system is a group of organizations or institutes that provides financial services to the public. Banks accept money from the public and invest that in a safe way. Bank returns the money to the public through the draft, order, and cheque. Here, in this article, we will do an in-depth analysis of the banking system in Pakistan. So without any delay, let's start.

History of Banking System in Pakistan

Before independence, the Reserve Bank acted as the Central Bank of India for regulating the currency. After independence, Pakistan established its first bank, the State Bank of Pakistan, that works as the Central Bank of Pakistan. At that time, Karachi was the capital of Pakistan, so the State Bank of Pakistan's headquarter was in Karachi.

In the act of 1952, the government opened the door for the private sector to step ahead in finance. It gave an excellent opportunity for individuals to start their own business. As a result of this act, a large number of banks were established. Due to corruption, banks damaged the finance department in 1950-1960.

In 1974 the government decided to nationalize the banks to avoid the unlawful situation.

(جاری ہے)

The government facilitated the employees, which resulted in poor service and situation. Nationalized banks performed poorly. At last, the government decided to privatize the banks in 1992. The privatization of banks gave good results. The banking industry gained the trust of the public and positively supported the economy.

In 1963 Egypt was the first country that introduced Islamic banking. After that, a number of Muslim countries experienced Islamic banking. Pakistan started Islamic banking in 2002 with the establishment of Meezan Bank. Meezan bank provides a wide range of facilities to the public, according to Islam. There is a proper way of profit and loss in the Meezan bank.

Pakistan Banking Ordinance 1962

Pakistan Banking Ordinance 1962 states that banking means accepting for the purpose of lending or investing the deposits of money from the public repayable in demand or otherwise and withdrawable by cheque, draft, or otherwise.

The banking system in Pakistan is based on this ordinance, or we can say that it is a guideline for banking in Pakistan.

Types of Banks

On the basis of functions, the banks are categorized as follows:

• Central Bank
• Financial Bank
• Micro Finance Bank
• Islamic Bank
• Commercial Bank
• Industrial Bank
• Exchange Bank
• Saving Bank
• Investment Bank
• Development Finance Institutions

Central Bank

The State Bank of Pakistan is known as the Central Bank of Pakistan. It was established on 1 July 1948 in Karachi.

Functions of State Bank of Pakistan

The State Bank of Pakistan performs the following functions.

• Regulates the banking system in Pakistan.
• Maintains the bank accounts of all the banks working in Pakistan.
• Issues money to the banks.
• Provides guidance to the banks and is known as the Banker’s Bank.
• Maintains the record of the government's expenditures and revenues.
• Decides the interest rate of bank deposits.
• Helps the government in developing economy building policies.
• Determines the foreign currency exchange rates.
• Issues the currency notes and regulates them throughout the country.
• Regulates the bank loans and their interest.

Commercial Banks

Commercial Banks are of the following three types.

• Public Sector Banks
• Private Sector Banks
• Foreign Banks

Public Sector Banks

These banks are under the control of the State Bank of Pakistan. Public Sector banks in Pakistan are:

• The Bank of Punjab
• First Women Bank Limited
• Bank of Khyber
• Corporation Bank
• Sindh Bank Limited

Private Sector Banks

Individuals or organizations have significant shares in private sector banks. Private Sector Banks working in Pakistan are vast in number. Some of them are:

• Bank Al-Habib
• NIB Bank Limited
• United Bank Limited
• Askari Bank
• Bank Al-Falah
• Allied Bank Limited
• Faysal Bank
• Silk Bank Limited
• Soneri Bank
• Standard Chartered Pakistan
• MCB Bank Limited

Foreign Banks

These banks are not Pakistani banks, but they have branches in Pakistan. These are the international level banks. Some of the foreign banks in Pakistan are:

Deutsche Bank AG

It is the German investment bank and provides multinational financial services in Pakistan.

CitiBank N.A

It is a multinational financial services bank. It is the bank of the United States, having branches in 19 countries of the world.

Bank of Tokyo - Mitsubishi UFG

It is one of the largest banks in Japan, established in January 2006.

Bank of China

It is the fourth biggest bank in China and is a commercial bank.

Industrial and Commercial Bank of China Limited

It is a multinational banking company in China.

Islamic Banks in Pakistan

Pakistan is an Islamic country, so Islamic banking is prevalent in the nation. Banks having Islamic banking in Pakistan are as follows.

• Meezan Bank Limited
• Dubai Islamic Bank
• Bank Alfalah Islamic
• Askari Bank Ltd.
• National Bank of Pakistan
• Bank of Punjab Islamic Banking
• Bank Al Habib Islamic Banking
• Allied Islamic Bank
• UBL Islamic Bank
• HBL Islamic Bank

Bank Accounts

To deal with a customer, a bank issues a specific number or identity to them, which is known as a Bank Account. Each customer has a unique bank account number. All the customer information related to a person is retained in the account number. Cash deposits, money-saving, money transfer, billing, loans, each and everything occurs through a bank account.

Types of Bank Accounts

On the basis of money and dealing with the bank, a bank has three types of accounts. If a person wants to deal with a particular bank, he will open the account in the required bank. The types of bank accounts are:

• Current account
• Saving account
• Fixed deposit account

Current Account

This account has particular requirements and is for the traders or the businessman community.

The features of the current account are as follows:

• It provides the checkbook, cash book, and debit card facility.
• It provides the online or telephone banking facility to the customers.
• The current account can also have the facility of overdraft.

Saving Account

As its name indicates, it saves money. A savings account is best for the person who wants monthly savings. The savings account is the cheapest account. It can be created with the amount of Rs. 100.

The features of a saving account are as follows:

• It is a profitable account.
• It has a minimum monthly balance limit.
• This account has ATM access to the client.
• It has unlimited transactions.
• It provides an online banking service facility.
• This account is easily accessible.
• It does not have any special requirements.
• It provides the checkbook facility.

Fixed Deposit Account

It is the account in which a client fixes its money. The amount of this account is not usable in the near future. The client fixes the amount for a specific time and then withdraws it with interest. It is a type of investment. The account is for a specific time, e.g., 10, 15, or 20 years. The bank pays interest to the customer only at the end of the fixed term. If the customer withdraws the amount before the time limit, then the bank will not pay interest to the customer.

The features of the fixed deposit account are:

• It is a profitable account.
• It has requirements.
• Time duration is limited.
• It provides good interest at the end of the account duration.

Swift Code

A Swift code is the bank identifier code. Swift code is used to identify a bank or its branch. Swift codes are useful in transferring money from one bank to another. They are also essential for transferring money at the international level. Swift codes are also used in exchanging the information of a client between two banks.

Swift code consists of 8 or 11 digits. The information regarding the swift codes is as follows:

• The first four characters contain the bank codes, and they consist of only letters.
• The fifth and sixth characters contain country code, and they consist of letters.
• After that, the seventh and eighth characters contain location code, and they consist of letters and digits.
• The last three characters contain the branch code, and they consist of letters and digits.

Top Five Banks of Pakistan

Banks play an essential role in driving the economy of a country. The top five banks of Pakistan are as follows.

Habib Bank Limited

This bank was established at the request of Muhammad Ali Jinnah in Mumbai in 1941. The purpose of the bank was to help the Muslim community in India. Habib bank is the largest bank in Pakistan. It provides commercial and financial services to clients. The bank offers its services abroad as well.

The headquarter of Habib Bank Limited is in Karachi. It has 1500 branches within Pakistan and 55 operational branches across Pakistan. The bank has approximately 2000 ATMs. Habib Bank Limited drives the following sectors:

• Retail financing
• Branch banking
• Corporate banking

Bank provides loans to small-scale businesses, agriculture support, securities, and commercial help to the clients.

National Bank of Pakistan

This bank was established in 1949. It provides a wide range of services in the commercial as well as the public sector. The headquarter of NBP is in Karachi. It has 1450 branches all over Pakistan and 21 branches across Pakistan. The bank has approximately 1000 ATMs in the country. The representative offices are present in Canada and China also.

National Bank of Pakistan is considered as the best bank in Pakistan.

Bank Alfalah

Bank Alfalah was established in 1997. The Dubai group of companies controls this bank. It is the 6th largest bank in Pakistan, having approximately 600 branches within Pakistan and across Pakistan. Bank Alfalah is operational in Bangladesh, United Arab Emirates, Bahrain, and Afghanistan as well. It provides loans, savings, credit cards, Islamic banking, corporate, and financial investment to the customers.

Askari Bank

Askari Bank was established in 1991 under the supervision of the Fauji Foundation. The bank was registered in the Pakistan stock exchange in 2013. For further progress, the bank was registered with Lahore stock exchange, Karachi stock exchange, and Islamabad stock exchange. Askari Bank has headquarters in Rawalpindi. Bank has 440 branches.

Askari bank provides customer banking, sales and retails, trading, finance investment, commercial banking, payment, and settlement, etc., to the customers.

Allied Bank Limited

It is one of the most popular banks of Pakistan, established in 1942. Allied bank has more than 1100 branches and approximately 1150 ATMs in Pakistan. The bank has more than 5000 employees. Allied bank provides a number of facilities to the customers.

E-Banking

E-banking is electronic banking. It is also called online banking. The development of the information technology department has changed the whole world. Nowadays, technology is used everywhere. An e-banking customer can regulate the account from anywhere; he does not need to visit the bank. A bank provides the following services under e-banking:

Debit cards, smart cards, credit cards, ATMs, mobile banking, telephone banking, electronic data interchange, internet banking, online funds transfer, online payment transaction, etc.

Advantages of E-Banking

The main advantages of e-banking are as follows:

• This system has very rare chances of error.
• Customers withdraw the required amount from anywhere through the ATM.
• There is no need to visit the bank branch.
• Anyone can easily transfer funds from one account to another.
• E-banking reduces transaction costs.
• It reduces the pressure on the banks.
• It provides the 24 hours service to the customers.
• Clients can check the balance and print the bank statement without the help of the bank.
• A person can view his bank record and transactions anytime.
• People can easily pay bills through e-banking.
• Clients can check the processed checks in the form of images.

Conclusion

The Pakistani banking system has been progressing in the right way since 2000. Pakistan's financial system is at 34 out of 52 countries in the world. Internet banking is getting more popular among the public as it makes life easier. It is helpful in payment of bills, funds transfer, and regulating the bank account. Indicators show that the business environment in Pakistan has been changed, and it is attracting investors.

SECP, State Bank of Pakistan, and Finance Ministry, along with the government of Pakistan, are striving hard to make the banking system in Pakistan better. The role of Islamic banking is also very important as more people are showing interest in it. The government should take more steps to encourage Islamic banking in Pakistan.