KARACHI, Sept 28: The proposed Financial Services Act that also seeks to place the task of the supervision of commercial banks under the Securities and Exchange Commission of Pakistan (SECP) received stern criticism from experts.

“This must stop or it will drag the financial sector 25 years back, when banks were doing all but the professional banking. The institution during that period was misused to a point where it became more of a political setup where depositors’ money was used to dish out huge loans to the government’s cronies,” said an expert.

He said that the banks were treated as employers of the last resort like other public sector outfits and the number of employees in those institutions far exceeded the requirement whereas the quality of skills was compromised.”There exists a need for further reforms in the commercial banking sector in Pakistan to make it more transparent and socially responsible. The banking regulations should be improved to provide more protection to an ordinary account holder who has yet to get his share of the benefit from the booming banks.

“Yes the margins in commercial banking sector of Pakistan are too high and ordinary depositors are getting virtually no interest on their deposits. If you discount the inflation rate from rate of returns being offered by the most successful banks, the return falls between 1-2 per cent. This needs to be corrected,” explained a banker currently working on a project of improving the practices of corporate governance in Pakistan.

“The State Bank can manage reforms better than any other body. All you need is strengthen it further and trim the level of interference from the finance ministry,” he stressed.

Recent business surveys by Overseas Chamber of Commerce and Industry and American Business Council identified the SBP as an institution that is perceived by their members to be the most efficient of all regulatory institutions.

The proposed move would take the control of commercial banks from the SBP and place it under the SECP.

“It is beyond me to understand the need to weaken the institution that is believed to be managing well. The success stories of banking in Pakistan has forced the international investors to take interest in the country as destination of their new investment in the region”, another professional with background in financial regulation told Dawn from Islamabad. The record of SECP post 2003, after the exit of Khalid Mirza, is not too enviable as far as its regulatory role goes. The capital market scams may be recalled here.

“The SECP already has more on its plate than it can handle why burden it with still more? It has a gigantic task to make the capital markets in the country more transparent and transform them into an institution where capital is raised to expand the manufacturing base in the country. It has yet to mature to be immune to the maneuvering of the lobby of mighty brokers, who treat it more like a gambling den,” one analyst observed.

The SECP does not have much to show in terms of performance of investment banks that it supervises.

According to our source in the ministry of finance development partners such as ADB have conveyed their displeasure over these moves to the government. No one in the ministry was available to offer a formal comment.

Meanwhile, commercial bankers are trying all in their means to block the passage of the Act. Their spokesperson saw the move as an assertion of the bureaucracy to extend their control over banks for obvious reasons.

Recently, a delegation of bankers met the lady governor of the SBP who reportedly promised to convey their concerns to the government without disclosing her own position on the issue.

There are also reports that bankers have decided to approach Prime Minister Shaukat Aziz, an ex banker, to press for their demands and to ask him to defer the signing of the proposed Act.