Foreign banks’ exit

WHY are foreign banks leaving Pakistan? In the last couple of decades, we have seen a number of global banking companies — Barclays, ABN-AMRO, Royal Bank of Scotland, HSBC, Crédit Agricole, Société Générale, etc — foray into the Pakistani market only to exit it after a few years just like most foreign airlines. Other international banks like Samba, owned by the Saudis, too are trying to wrap up operations and disinvest their assets here, or scale down their business and branch operations. There is no denying that some of them have left Pakistan as part of a strategy to consolidate their global operations in the aftermath of the international financial meltdown of 2008. However, most have exited or are considering leaving because it is not sufficiently profitable for multinational banks to continue their operations in Pakistan for several reasons. For example, multiple economic shocks, leading to abrupt and large currency depreciation, restrictions on outward remittances of bank dividends and profits by their shareholders, inconsistent policies, and huge taxes on the banks’ earnings are challenging for them. This is the message a foreign banker tried to convey at a business conference in Karachi recently, saying that foreign banks are gradually withdrawing due to the country’s declining credit profile. Last but not the least, banks operating out of Pakistan are being closely watched due to the risks of money laundering and terrorism financing in spite of the green chit given by FATF to Pakistan a couple of years ago after Islamabad took extensive actions to strengthen its AML/CFT regime in line with the global watchdog’s requirements.
In the past few years, Pakistan’s business climate has declined rapidly due to worsening economic conditions, especially the recurring balance-of-payments crises, and policy inconsistency. This has resulted in several foreign companies — drug manufacturers, airlines, oil marketing firms, oil and gas exploration companies, etc — quitting the Pakistani market to cut their losses. It is possible that these companies might not have left Pakistan had the multinational banks chosen to stay. The latter’s presence in any country is important because it inspires confidence among foreign investors in the strength of the state’s economy and its financial policies. Thus, when a foreign bank leaves a market it hurts the host economy more than the exit of an oil marketing company or any other firm.
Published in Dawn, November 9th, 2024