KARACHI, Oct 21: The banking system of Pakistan had escaped the ravaging effects of the recent financial turmoil emerging from the US and engulfing the developed European economies, said State Bank Governor Dr Shamshad Akhtar on Tuesday.

She was speaking at The Asian Banker Dialogue on ‘The Banks We Like and the Impact of the Global Financial Crisis on Pakistan’s Banks’ at a local hotel.

However, she observed: “In my assessment, Pakistan’s economy to date has been affected mainly by the indirect impact of world events which led to the rise in the global commodity prices.”

Pakistan was perhaps the worst-hit economy by the surge in global commodity prices as it had been a predominant factor in derailing the macroeconomic fundamentals, she said.

Citing an example to explain this situation, she said that almost 80 per cent of the external current account deficit in FY08 was equivalent to the import oil bill which shot up to over $11 billion in FY08 as compared to below $3 billion a few years ago. Similarly, a large increase in FY08 deficit was on account of delay in passing on the impact of international price hike to retail customers, she observed.

Dr Akhtar said the financial market in Pakistan had not been hit by the subprime markets or the associated contagion directly as Pakistan’s banking system from July 2007 to September 2008 had not faced any liquidity problems.

With the strong regulatory oversight, we had seen significant enhancement of capital and capital adequacy ratio supported by high provisioning requirements. The governor said that in July 2008, the State Bank had launched strong financial sector reforms to lay foundation for a healthy financial system to cope with the emerging challenges.

She also said the capital adequacy ratio of the banking system was strong i.e., 12.1 per cent (in June-08) well above the internationally acceptable minimum requirement of eight per cent. Also, the core capital constituted about 80 per cent of the total capital and Tier 1 to risk weighted assets ratio of the banking system was at 9.7 per cent well exceeding the four per cent minimum international standard.

As of Oct 4, 2008, the balance sheet footing of our banking system was around Rs5.1 trillion while loans and deposits of the banking system were around Rs2.8 trillion and Rs3.8 trillion respectively, she added.

Referring to the recent liquidity pressures in the banking system of Pakistan and surge in the inter-bank lending rates, she said those pressures mainly pertained to a combination of seasonal factors (cash withdrawal for Eid and beginning of commodity finance season) and decline in foreign currency inflows. However, continuous rumour-mongering by unscrupulous elements to destabilise the banking system had intensified the liquidity pressure, she observed.