Growth of digital financial services in Pakistan: Need of more improvement measures and investment in tech banking.

Byline: Syed Fazl-E-Haider

Banking sector accounts for around three-fourth of Pakistan's financial sector. A robust banking sector is a healthy sign for the economy of a country. It is this sector that plays the role of financial intermediation between savers and investors, which actually determine the rate of economic growth. The banking sector plays a critical role in mobilization of savings from households from across the country and placing them at the disposal of entrepreneurs. There is a dire need to make efforts for making the banking system more inclusive and focus its lending activities on the SMEs and agriculture sector. The banking authorities should reduce spreads between the deposit and lending rates and increase the profits on deposits so as to encourage the depositors to save more rather than consume.

There are reports the international rating agency Moody's has changed outlook of five Pakistani banks to stable after changing the country's outlook to positive from negative last week. The Moody's has kept the rating outlook of the banks unchanged to B-3. While the Moody's in a report released in September, said, "Over the next 12-18 months, banks in Pakistan would see their credit profiles challenged by their high exposure to the country's low-rated sovereign debt and a slowing economy." The report had said that the banks' operating conditions would be difficult, as GDP growth slowing to 4.3% in the fiscal year ending June 2019, down from 5.8% in 2018. Moody's also observed that Pakistan's banks face the risk of macroeconomic contagion through a range of channels, including their large holdings of government securities, which caps their credit profiles to the sovereign, and from the authorities' weakening capacity to support the banks in case of need.

The rating agency weighs the five largest banks in Pakstan by assets. These banks together by assets account for 50 percent of the banking system deposits.

Initiative for digitization of financial services

Present government and the central bank are working on plan for digitization and financial inclusion in Pakistan. The State Bank has already launched National Payment Systems Strategy (NPSS) and the MPG initiative laying out a clear and solid framework for a digital payments network in the country.

The digital financial services made its way in 2008 when the country adopted branchless banking regulations. In 2015, the country approved the national financial inclusion strategy...