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NATIONALIZATION & PRIVATIZATION OF COMMERCIAL BANKS IN PAKIS
Transcript of NATIONALIZATION & PRIVATIZATION OF COMMERCIAL BANKS IN PAKIS
Objective of Privatization of Banks in Pakistan
To undertake restructuring of financially distressed banks.
Reduction in fiscal deficit
To foster competition
Broad basing of equity capital
To improve saving mobilization and enhance the efficiency of credit
To enhance the soundness of the banking system through an improved
regulatory and supervisory framework.
To develop money and capital markets.
To minimize the ratio of non-performing loans.
The objectives of privatization of banks can be achieved if the following principles
are adopted for privatization process in Pakistan:-
• Privatization should be viewed as good governance reforms.
• Privatization program must be an integral part of a country’s economic policy.
• Privatization program must include a strong institutional and regulatory
• The environment must be competitive, regulated and transparent.
• Deregulation of the financial system should precede privatization.
• Regulation is required only where restructuring unable to ensure a fully
• Rehabilitation prior to privatization should be avoided.
• Privatization programs should be accompanied by extensive public awareness
• Privatization programs should be complemented by comprehensive social
Historical background of the Pakistan banks may be divided in tree stages.
Since 1947 to 1974 ----Pre Nationalization Stage
Since 1974 to 1991----- Nationalization Stage.
Since 1991 onward---- Privatization Stage.
Commercial banks are in the business of providing banking services to individuals,small businesses and large organizations.
range of opportunities in commercial banking, starting at the branch level where youmight start out as a teller to a wide variety of other services such as leasing, creditcard banking, international finance and trade credit
Categories of commercial banks in Pakistan:
Commercial banks operating in Pakistan can be divided into four categories:
Nationalized Commercial Banks (NCBs)
Private Banks and
Pre Nationalization Stage:
A major step taken in 1962 was the enactment
of a comprehensive banking law to ensure development of banking in the country on
sound lines and safe guard the interests of the depositors. Following the loss of East
Pakistan, and the assumption of office of new government in 1971, bank reforms were
introduced in may 1972. In 1974 the Government Nationalized the State Bank and all
commercial Banks incorporated in or out side Pakistan and were brought under
The People’s Party Government led by late Mr. Zulfiqar Ali Bhutto nationalized
fourteen commercial banks and the State Bank of Pakistan under the Nationalization
Act 1974 on January 1, 1974. Up to December 31,1973 there were fourteen Pakistani
commercial banks which were functioning all over the country and some foreign 27
countries through the network of branches.
The objective of the nationalization was to stop the accumulation of wealth in few
hands. Since the banks have been nationalized, the merits and demerits of the public
ownership of banks continue to be a subject of controversary. The main
considerations behind the nationalization of banks were as under:
Concentration of banks credit in few hands.
• Fair distribution of credit.
• Financing of agriculture.
• Credit needs of small industrialist.
• Mobilization of resources.
• Service motive.
• Improvement in efficiency.
• Holding of the price Line.
• Increase in the rate of economic growth.
• Abolition of malpractice.
• Security to the depositors.
Privatization activity has grown in the past ten years, both in terms of number and value
of transactions. In the 1980s there were only a few transactions on average per year, but
by the late 1990s the annual average rose to about 500. Between 1990 and 1999, total
global proceeds amounted to US$850 billion, growing from $30 billion in 1990 to $145
billion in 1999.