Introducing reforms in the banking sector

Banking sector unduly prospered in the reign of Musharraf-Aziz Qureshi.In order to get acclaim and recommendations from powerful financial lobby,national and international(it is well integrated),it is found essential by illegitimate regimes pursuing temporary bonanza and ratings,to patronize and unduly benefit this sector.Result being buoyancy in banking and purely speculative stock exchange.International press and media starts publishing photos and shower praise.Often ratings improve mostly because of the psychological factors.Boom is brought to be followed by a subsequent bust as has happened in the past and also most recently.Although the recent bust has been related with international factors, while it is also true that slowdown had already set in by 2005.You can only go so far by superficial laissez-fair and by utilizing earlier installed capacities and investments.Why is the boom not sustainable? Perhaps the bust is implicit in the boom?

Hot capital attracted by a purely speculative market goes away at the slightest indication ,robbing the small investors of their investments by causing planned and unplanned crashes.Stock markets based on long term investments and yields may be of some benefit to the economy,contributing to the welfare of investing public and creating jobs and economic activity.

If there is an improvement in the performance of the financial sector,the interest rates should have come down along with the cost of intermediation. Lending rates hover around 18-20%,while the deposit rates seldom exceed 10 %.This is among one of the highest bank margin ,indicative of underdeveloped and inefficient financial and banking sector.It discourages both borrowing and deposits and only encourages bankers.No wonder banks in this country have earned huge profits. The artificial boom, call it free-for- all , caused distortions in banks factor market.Ordinary run of the mill managers started demanding and managed to get impossible salaries.After all the loot had to be shared.It was shared by their patrons,banks and the employees.Net losers being the depositors and the economy.

This is the time to correct the excesses of Musharraf regime and bring in some real competition in the sector so that the lending rates come down ,removing one of the major stumbling blocks in the competitiveness of Pakistani exports ,causing trade gap ,foreign borrowing and more inflation.However Pakistan interest rates are not high due to inflation,as the deposit rates are comparatively low.It is the bank margin that makes interest rates high ,I must say,at the risk of being nauseatingly repetitive.There is no need to be disruptive and rash.Some adjustments and reforms can definitely cause improvements without rocking the boat.A high level committee of the stake holders incorporating some genuine reform and socially oriented intellectuals and professionals should be formed to address the required changes.