In a compelling critique published by The News International, financial analyst Furqan Ali takes aim at the prevailing criticism directed at Pakistan’s banking sector—specifically, the accusation that banks are excessively reliant on risk-free government lending rather than providing meaningful support to the private sector.
While critics often label this behavior as opportunistic or lazy banking, Ali contends that such a judgment fails to consider the broader systemic issues that dictate lending behavior in the country. He argues that the financial sector’s tendency to favor government securities is not a reflection of poor business ethics or negligence, but rather a pragmatic response to Pakistan’s deeply flawed economic structure.
Ali lays out a grim but clear picture of the ecosystem in which banks are expected to operate. From the pervasiveness of weak governance and low institutional accountability to a persistently underperforming tax regime, he notes that the country’s financial institutions are navigating a landscape riddled with uncertainty. The massive size of the informal economy and the lack of transparency in financial transactions only add to the high risk associated with private sector lending.
In such a high-risk environment, government securities become the rational choice for banks looking to protect their capital and remain solvent. These investments not only offer guaranteed returns but also provide a cushion against the volatility and unpredictability that characterizes lending to the private sector. According to Ali, it is unfair to expect commercial banks to shift toward riskier ventures without addressing the core structural problems that amplify the risk-reward imbalance.
He makes the case that the government must prioritize comprehensive reforms in fiscal governance and economic policy before expecting any transformation in banking behavior. This includes urgent overhauls in public sector management, broader efforts to formalize the economy, and improving tax compliance mechanisms to widen the revenue base. Only then, Ali suggests, will the banking sector be in a position to play a more catalytic role in economic development through private sector financing.
Ali’s commentary also sheds light on the longstanding disconnect between regulatory expectations and ground realities. With mounting pressure on banks to expand their role in private sector credit, policymakers often overlook the systemic weaknesses that hinder this goal. He underscores that unless the root causes are addressed—particularly poor tax collection, lack of investor protection, and policy instability—any push for banks to adopt a more risk-forward approach is bound to fall short.
In closing, Ali emphasizes the need for a coordinated approach involving regulatory bodies, financial institutions, and the government to foster a stable and growth-oriented lending environment. Without bold and meaningful reform, he argues, Pakistan’s banking sector will continue to gravitate toward the safer bet—government lending—leaving the private sector starved of essential credit.