PK Banking Sector Development Policy Credit

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The Banking Sector Development Policy Credit/Loan Project seeks to support the Government of Pakistan towards improving sector governance, through the privatization of the United Bank of Pakistan (UBL), the Habib Bank Ltd. (HBL), and resolution of the Allied Bank of Pakistan (ABL), further strengthening the regulatory and supervisory environment for banking, improving transparency and disclosure, and preventing the possible use of the banking system for money laundering. Both the Country Assistance Strategy (CAS) and the Poverty Reduction strategy Paper (PRSP) recognize the importance of financial sector reforms for accelerating economic growth, and reducing poverty. By and large, the success of reforms stems from the improved legal and regulatory framework, and enhanced corporate governance as a result of the reduced role of government. Profitability and liquidity indicators within commercial banking have shown marked improvements, while the banking sector has also become considerably more competitive and responsive. The project would support further strengthening of the banking sector competitiveness, and its outreach to areas/population with little or no access to banking services. However, there is a risk of policy reversal in the medium term, if access to financial services does not expand to the rural areas, and other traditionally, underserved sectors. The significant growth in credit to the consumer markets poses a risk, thus requiring strengthening of credit appraisal systems, and risk management by the banks, as well as strong monitoring by the regulator. There have been initiatives to promote, and expand credit information services in the private sector, enhancing governance and transparency, as well as improved legal and judicial processes for insolvency bankruptcy.