Impact of privatization on profitability of banks
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Impact of privatization on profitability of banks
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Impact of privatization on profitability of banks
- 2. Impact of privatization on profitability of banks
- 3. Group Members β’ Farhan Ali β’ Rana Zeeshan Ali Khan β’ Shaheryar Arif β’ Umair Saleem β’ Mudassir Hussain β’ Jahanzaib Sabtain
- 4. Nationalization & Privatization There are two major concepts in economy ο±Nationalization ο±Privatization
- 5. What is Nationalization? βNationalization is the process of bringing the assets of a company into the ownership of the stateβ β’ In the early years of Pakistan, the banks were going well and they played an important role in the economic development of country. β’ But afterwards it was felt that banks did not provide funds towards the most needy sectors of economy.
- 6. β’ Keeping in view this situation the banking business was nationalized on 1st January 1947, under Bank Nationalization Act, 1974. On 31st December 1973 there were 13 Pakistani scheduled banks in Pakistan with 2906 branches in all over the country. β’ Govt. of Pakistan took control of all 13 commercial banks and state bank of Pakistan under Bank Nationalization Act, 1974. Govt. merged the weaker banks with the banks which had strong financial position to make 5 nationalized banks in all. These banks are: I. National Bank of Pakistan (NBP) II. Habib Bank Limited (HBL) III. Muslim Commercial Bank (MCB) IV. United Bank Limited (UBL) V. Allied Bank Ltd. (ABL)
- 7. What is Privatization? Privatization is the transfer of ownership of government owned institutions to the private sector. It may be share issue privatization, asset sale privatization, voucher privatization.
- 8. Steps in Privatization Identification Hiring of a financial advisor Due Diligence Regulatory Reforms Valuation of PropertyPre-bid & bid processPost bid
- 9. Objectives β’ Better standard of service β’ Improvement in performance β’ Promote healthy competition β’ Quick decisions β’ Development of capital market β’ Increase in deposits β’ Security of loan
- 10. How privatization can improve performance β’ There are three themes in which privatization can be grouped 1. Competition 2. Political interventions 3. Corporate governance
- 11. Competition The competition argument states that privatization will improve the operation of the firm and the allocation of resources in the economy, if it results in greater competition.
- 12. Political intervention Privatization can improve efficiency even without changing market structure if it hinders interventions by politicians and bureaucrats who would like to use the SOEs to further their political or personal gains.
- 13. Corporate governance It is also argued that corporate governance is weaker in state owned enterprises than in private firms because of agency problems and weak incentive system for managers.
- 14. Impacts on profitability β’ Return on Equity (ROE) β’ Return on Earning Assets(ROEA) β’ Loan To Deposite(LTD) β’ Non-Performing Loans
- 15. ABL
- 16. MCB
- 17. Advantages β’ Improvement in performance β’ Better standard of living β’ Decrease in expenses β’ Increase in deposits β’ Secured loans β’ Decrease in default loans β’ Productive loans β’ Quick decisions β’ Economic development
- 18. Disadvantages β’ Neglecting small industries β’ Neglecting Agriculture Sector β’ Lack of co-operation β’ Concentration of wealth in few hands β’ Protection of black money β’ Favoritism β’ Profit motive