PAKLINKS BANNER EXCHANGE
The banking and financial sector mainly comprises commercial banks, government controlled Development Financial institutions (DFI's). Investment Banks, Modarabas, Leasing Companies and Housing Finance Companies.
At the end of June 1996, the local commercial banks both private and nationalized, have 8,523 branches on Pakistan and 126 branches overseas. The foreign banks have 83 branches in Pakistan.
The main Law governing the Banking Companies in Pakistan is Banking companies Ordinance, 1962 which regulates and governs the establishment and running of banking companies in Pakistan.
The State Bank of Pakistan. The Central Bank of the country was established in 1948. The Bank besides monitoring the implementation of Banking Companies Ordinance, specifies regulations relating to the monetary system and organization of banking within the country.
The Banking Companies Ordinance, 1962 and State Bank of Pakistan Act, 1956 specify various regulations, some of which are specified below:
Capital and reserves requirements
Capital is required to be maintained at a certain percentage of demand and time liabilities of a bank.
Reciprocity
Before granting a license to operate as a foreign banking company, the State Bank of Pakistan may require to bc satisfied that thc Government or law of the country in which the banking company is incorporated, provides the same facilities to banking companies registered in Pakistan, as the Government or law of Pakistan grants to foreign banking companies.
Cash reserve
Banks are required to maintain at least 5% of their demand and time liabilities excluding the paid-up capital, reserves and balance in the profit and loss accounts as Cash Reserve.
Liquid assets
Banks are required to maintain at least 30% of their total demand and time liabilities in liquid assets including unencumbered approved securities.
Assets in Pakistan
Banks are required to maintain assets equal to at least 85% of the total time and demand liabilities within Pakistan.
Inspection of banks
Section 40 of Banking Companies Ordinance 1962 provides that State Bank of Pakistan may carry out an inspection of the banks operating in Pakistan from time to time.
Annual accounts and audit
A banking company under the Banking Companies Ordinance is required to maintain calendar year as its financial year and its financial statements are required to be audited.
Remittance of profits
Foreign Banks operating in Pakistan are allowed to remit the net profit earned in Pakistan.
Number of branches
Foreign banks operating in Pakistan were previously restricted to a total of three branches in Pakistan. However, recently the State Bank has relaxed the restriction and has allowed operating of four branches.
The setting up of a bank (including a foreign bank) requires a banking license from State Bank of Pakistan.
Introduction
Non Bank Financial Institutions (NBFIs) include Development Finance Institutions (DF I), modarabas, leasing companies, Investment Banks and I Housing Finance Companies (HFC).
Leasing companies
The leasing companies are relatively new and primarily engaged in the leasing of vehicles and plant and equipment.
The Finance Act. 1995 has repealed the Capital Issues (Continuance of control) Act 1947. The following is a summary of some salient matters provided in the SRO. 345(1)/96:
Application for permission to establish a leasing company shall be made to the CLA in the prescribed form.
Modarba as defined in "The Modaraba Companies and Modaraba (Floatation & Control ) Ordinance, 1980 mean "a business in which a person participates with his money and another with his efforts or skill or both his efforts and skill and shall include unit trusts and Mutual Funds by whatever name called".
Modarabas may be of two types namely:
This may have more than one specific purpose or objective.
The majority of modarabas presently quoted on the stock markets are multipurpose perpetual modarabas.