Amir Khan

Amid an unexpected surge in government borrowing, Pakistan finds itself at a crossroads as its banking sector grapples with challenges that could reshape the nation's economic landscape, according to Erasmus Mundus financial analyst Dr Faiz-ur-Rehman. Talking to WealthPK, he delved into the intricate web of issues surrounding the country's financial institutions, shedding light on the global shifts in banking and the urgent need for local adaptation. Rehman pointed out the seismic shift in the global banking sector, fuelled by technological advancements and changing consumer expectations. “The emergence of digital banks, payment platforms, wealth management providers and fintech unicorns, valued at over $1 trillion collectively, signals a move away from traditional banking models.”

He added that with declining profits and revenues, traditional banks faced an "accelerating discount" in the world's largest stock markets, posing a threat to their sustainability. He said that specialised services offered by nimble fintech firms were challenging traditional banking, making a case for the inevitable evolution towards a more specialised banking landscape globally. The Erasmus Mundus analyst also highlighted the erosion of talent in the banking sector. “In an era where the brightest minds are drawn to technology firms, start-ups, and consulting agencies, traditional banks are grappling with a talent drain,” he noted.

“Young professionals view the banking sector with scepticism and disinterest, posing a potential threat to the continuity and financial stability of banks worldwide,” he added. Shifting the focus to Pakistan, Rehman criticised the country's banking sector for failing to adapt to global trends and remaining mired in outdated business models. “From an aversion to risk to a lack of capital support for businesses, Pakistani banks have struggled to evolve.” He argued that despite external reforms, local banks continued to insist on brick-and-mortar growth, emphasising the need for a paradigm shift in their approach.

In light of the challenges, the Erasmus Mundus analyst urged Pakistani banks to embrace specialisation, build talent in specific sectors, redefine their purpose, and restructure into more efficient units. He emphasised the necessity for the banking industry to facilitate business and entrepreneurship in the country. “As Pakistan stands at a crucial juncture, banks have to carry out strategic reform before external forces dictate change.” “Amidst the uncertainties, indeed the need for proactive and strategic measures is palpable as Pakistan navigates through these unprecedented economic challenges,” he cautioned.

Credit: INP-WealthPk