Banks’ entry into NBFI sector not feasible: SECP

KARACHI: Chairman Securities and Exchange Commission of Pakistan (SECP) Dr Tariq Hassan has said that banks’ foray into non-banking activities may not be feasible for the development of Non-Banking Financial Institutions (NBFIs) of the country.

His speech, on the topic of Universal Banking and its Impact on Non-Banking Financial Institutions, was read out at a breakfast forum, organised by The Institute of Bankers Pakistan on Friday.

By tracing the history of policy reforms of NBFIs, Dr Tariq, who could not reach Karachi because of flight problem, said after the promulgation of a new law “improvements in the NBFI sector are visible”.

He said the concept of NBFI would serve to complement the present banking scenario.

However, he argued that “it is imperative that before moving on to universal banking, we first carefully consider what impact of this venture will be on the overall state of financial sector, particularly non-banking financial institutions”.

He raised three questions for the bankers to consider. – Whether the existing NBFIs would be able to cope with increasing competition from universal banking. – Would this pave the way for commercial banks’ domination or even take-over of NBFIs. – As new risks and uncertainties of the operating environment emerge, will NBFIs be able to manage such risks.

He categorically said: “Universal banking may lead to an unacceptable concentration of power and a less competitive performance.”

He said the success of universal banking and its healthy impact on NBFIs depended on the universal banking model that would be followed.

He said that the banks’ move to set up subsidiaries for performing non-banking activities would create competition in the NBFI sector, but added that the entry of banks themselves in the non-banking area might not be feasible for the development of NBFIs.

The SECP was of the view that a well-developed NBFI sector was an important component for developing a broad and efficient financial system and consequently, providing a sound base for economic growth and prosperity, he said.

Dr Hassan said: “We must, therefore, give careful consideration to the impact of universal banking on the NBFIs.”

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