nationaliztion & Privatization of banks

1. Introduction to Banking
Nationalization of banks
Privatization of banks
By: Ashra Rehmat
Rafia Khan Sandrana

2. Nationalization of Bank
Nationalization means transfer
of any property or institution from
the private to the ownership of state.
It is defined as:
“Nationalization is the process of bringing
the assets of a company into the
ownership of the state”

3. Nationalization of banks in
Pakistan
• In the early years of Pakistan,
the banks were going well and
they played an important role in
the economic development of country.
• But afterwards it was felt that banks did not
provide funds towards the most needy
sectors of economy.
• Keeping in view this situation the banking
business was nationalized on 1st January
1947, under Bank Nationalization Act, 1974.

4. Categories
• On 31st December 1973 there
were 13 Pakistani scheduled banks
in Pakistan with 2906 branches in
all over the country.
• Govt. of Pakistan took control of all 13
commercial banks and state bank of Pakistan
under Bank Nationalization Act, 1974. Govt.
merged the weaker banks with the banks
which had strong financial position to make 5
nationalized banks in all.

5. Categories
These banks are:
I. National Bank of Pakistan (NBP)
II. Habib Bank Limited (HBL)
III. Muslim Commercial Bank (MCB)
IV. United Bank Limited (UBL)
V. Allied Bank Ltd. (ABL)

6. Objectives
Objectives of nationalization of
banks were as follows:
I. Credit for agriculture sector.
II. Controlling unproductive
expenditure
III. Ending control
IV. Professional management
V. Credit for small entrepreneurs

7. Advantages of nationalization of
banks
• Fair distribution of credit
• Financing agriculture sector
• Banking facilities for underdeveloped
areas
• Control over non-development expenditure
• Security of deposits
• Development of banks
• Service motive
• Price stability
• Mobilization of resources
• Use of profit

8. Disadvantages of nationalization of
banks
• Low efficiency of bank
employees
• Poor service standard
• Political interference
• Favoritism
• Rise in price
• Unbalanced distribution of credit
• Increase in expenses
• Poor recovery of loan
• Decrease in profit
• Low competition

9. Privatization of Banks

10. Privatization of Banks
Privatization is the process
of involving private sector in
the ownership state owned
enterprises.
It is defined as:
“Privatization is the denationalization of
an industry, transferring from public to
private ownership”

11. Privatization of Banks in
Pakistan
• The objectives which were expected by
government have not been achieved.
• Government of Pakistan decided to
privatize the bank sector.
• A privatization Commission was set up
on 22 January 1994. The commission
has transferred MCB, ABL, UBL, HBL
but NBP was not privatized. It’s Shares
have been sold to general public
Through LSE.

12. Rules for establishing
a new bank in private sector
• Public limited sector
• Must be listed on SE of country
• 20% shares must be offered to general
public
• Minimum capital of two billion
• Directors of bank will not be allowed to
sanction loans for themselves
• Bank will concentrate their branch network
in urban areas
• Bank will provide quick & efficient services
to customers

13. • Bank will play an effective
role in mobilization of savings.
• Bank will provide services
for rural areas according to new
concessions and incentives.
• Bank will have to abide by the instructions
of SBP.

14. Objectives
• Better standard of service
• Improvement in performance
• Promote healthy competition
• Quick decisions
• Development of capital market
• Increase in deposits
• Security of loan

15. Advantages of privatization of
banks
• Improvement in performance
• Better standard of living
• Decrease in expenses
• Increase in deposits
• Secured loans
• Decrease in default loans
• Productive loans
• Quick decisions
• Economic development
• Reasonable profit

16. Disadvantages of privatization of
banks
• Misuse of loans
• Unhealthy competition
• Neglecting small industries
• Neglecting agriculture sector
• Lack of co-operation
• Concentration of wealth in few hands
• Protection of black money
• Advances to relatives and employees
• Favoritism
• Profit mitive

17. Thank You!