The publication of Banking Review in your hand has taken place in less than one month after the death of pioneer of economic and financial journalism in Pakistan M. A. Zuberi.
This occasion, therefore, affords us an opportunity to take a leaf out of the late doyen's book with a renewed commitment to upholding the lofty ideals that he espoused throughout his life. M. A. Zuberi was an ardent champion of private enterprise, free trade and free markets, democratic system of government, and an unwavering advocate of agrarian reforms.
According to him, the objectives of financial and monetary stability should complement each other given that the financial sector is an important component of the transmission mechanism and implementation of monetary policy framework in the country. He would often make it clear to the authorities that the country's Central Bank - the State Bank of Pakistan - should have the pulse of the economy and must be given the freedom to strictly pursue monetary policy objectives enunciated in the SBP Act.
It is no longer a secret that it was due to his concerted and painstaking efforts that resulted in protecting the privately-owned and operated textile sector against the spate of nationalization unleashed by Z.A. Bhutto. Similarly, many in the banking industry of the country are aware of the fact that it was he who successfully persuaded the then president of Pakistan, Gen Ziaul Haq, not to destroy the banking structure of the country which was, and is, based on international rules of economics and finance, through his flawed, myopic and obscurantist view of religion.
It is important to understand that since the monetary and fiscal policies are significant determinants of the current account balance, deficits need to be accompanied by improved fiscal discipline. There has always been a plausible argument that the effectiveness and credibility of government policies depends crucially on the availability of timely and accurate financial and management information supplemented by a framework of financial and accounting principles designed according to internationally accepted and practiced standards.
Moreover, a system of public accountability, that includes a strong and an independent legislative oversight and audit function, ensures fiscal discipline by the executive branch. Strengthened and prudent financial management practices will always increase the effectiveness of development programmes and related external assistance.
In Pakistan, like many other developing countries, banking is a highly regulated industry, and government restrictions on financial activities by banks have varied over time and location. The present day banking (which is presently suffering from a high incidence of NPLs in particular owing to a variety of factors) is characterized, largely because of technological innovation, by an increasingly sophisticated provision of banking services and an expansion of consumer credit. Banking laws that regulate the banking industry in Pakistan are not discrete areas of legal principles which impact on banking transactions and on the banker-customer relationship. In that sense, the realm of banking, the location at which a diverse range of principles intersect is what we refer to as banking law.
The inclusion of fairness reasonably and comfortably sits with a bank's existing obligations. Acting ethically is no more than an obligation to act fairly and honestly. Banking law is a wide-ranging and constantly changing area of the law. It focuses on an activity which has been at the heart of a strong and vibrant economy since ancient times and which intersects with the lives of most individuals - anyone with a bank account.
While he favoured the idea of a sound banking system, free from unnecessary government intervention, he was also a great proponent of its effective role in ensuring balanced growth and a fair deal to all segments of society. For such a strategy to succeed, it was considered vital to expand the outreach of the commercial banks to rural or unbanked areas in various regions of the country through policy intervention or moral suasion by the Central Bank. The usefulness of such a policy has been evident, overtime, in a number of ways. More deposits could be mobilized, and high level of loans could be disbursed in comparatively less developed areas of the country to enhance their growth rates and reform their social structures. The exercise could be more fruitful if local educated people, who are familiar with conditions of their respective areas, are inducted in new branches. In short, the spread of banks to unbanked areas could help change the life styles of people residing, particularly those in small villages.The founder-Editor of Business Recorder was highly critical of successive governments' proclivity to use banks purely .for fiscal considerations at the cost of ordinary savers. It was argued that withholding tax on interest income and penalty on withdrawals beyond a certain amount would discourage banking habit, promote consumption and encourage activities in the informal sector. Such a policy was all the more risky when rates of return were already negative and the country needed to have a much higher saving rate to attain self-sufficiency. Even now, authorities of the country can benefit from his ideas to harness the capacity of the financial system to improve the economy on a sound footing.
In conclusion, Business Recorder wishes to underline the fact that although the fall in effective CRR (Cash Reserve Ratio) often adds to the market liquidity, the excessive government borrowing from the Central Bank is usually a dominant factor that offsets the impact of, among other things, strong private sector credit demand. A tight monetary policy regime notwithstanding, the banks, nevertheless, are required to be more sympathetic towards private sector, which is undoubtedly any country's engine of growth, an important creator of wealth, a traditional provider of much-needed capital to promote investment and a dependable source of employment for people.
BR RESEARCH TEAM:
-- Ali Khizar Head of Research
-- Sohaib Jamali Research Editor
-- Zuhair Abbasi Research Analyst
-- Haider Nawab Research Analyst
-- Manal Iqbal Research Analyst
-- Sijal Fawad Research Analyst
-- Abdul Musawer Gulzar Graphic Designer
-- Naseem Waheed Research Database Officer