Banking & Finance

The Financial System in Pakistan has grown considerably both in terms of diversification, sophistication as well as in terms of market depth in the past few years. Over the last decade, the sector has registered growth of 43% in real terms. The financial market in Pakistan mainly comprises, the banking system, money market, insurance market, and capital markets further divided into the debt and equity market. The sector contributes nearly 5% to the GDP.

Strengths

  • The extraordinary performance of the banking sector has induced Foreign Direct Investment (FDI) of USD 4.2 billion over the last 7 years. Almost 90% of this has been received by the banking sector, which has attracted USD 3.7 billion of FDI.
  • Recapitalization and prudent lending supported by strong regulatory and supervisory framework have lowered net non-performing loans to historical lows.
  • Well established global financial institutions are now active participants in the domestic financial sector.
  • Today, more than 80% of banking assets are in the hands of the private sector which has brought in a new culture of professionalism and service orientation in place of bureaucracy and apathy.
  • Pakistan’s equity market is one of the best performing equity markets in the world for almost a decade with aggregate market capitalization increasing to PKR 3,148 billion during 2010-11 which is a growth of over 15.2% over last year. Further, the KSE-100 index has shown 25% growth in comparison to fiscal year 2011.

Potential

  • Savings as a percentage of GDP wavers between 11-13%. This indicates a huge potential for mobilization of deposits and improvement of liquidity in the banking system.
  • The KSE market capitalization to GDP ratio stands at 15% indicating an immense potential for further deepening of the equity market.
  • The small and medium enterprise sector has been growing at a steady rate of 7% annually. To cater to the sector’s needs, diversification of specialized financial products will result in even higher growth of the banking industry.
  • To reduce the vulnerability of the industry to commodity price fluctuation, development of commodities and futures market can be further expected to fuel the financial quantum of growth.

Investment Opportunities

  • Debt Instruments
  • National Saving Schemes
  • KSE-100 Companies
  • Mutual Funds