to be recognized that pakistan ’ s banking system has witnessed a sea change : ( i ) in terms of size, structure and ownership, the banking assets doubled over cy00 - 05 reaching rs 3, 649 billion ( over $ 62 billon ) by end - cy05. around two thirds of the banking system is with local private banks and 9 % with foreign banks, while the share of public banks has been scaled down to approximately 20 % by end cy05, relative to 50 % at end cy00. interestingly, while foreign banks have a low deposit base, foreign shareholding of banks is quite significant, spread across 8 banks that account for 42 % of the deposit base. large foreign presence would facilitate adoption of international norms and practices and expose pakistan ’ s banking industry to e - banking etc. ( ii ) banks declared unprecedented profits in cy05 close to rs 95 billion before tax and rs 64 billion after tax, relative to losses of rs 4. 5 billion ( after taxes ) in cy00. aside from the gains of a relatively high interest environment, banks benefited from an increase in the volume of business ( especially increase in lending activities which are well supported by fee - earning activities ), improvements in operational efficiency and better risk management ( that helped contain administrative costs and loan infection ). ( iii ) banks have managed to contain their credit risk at prudent levels, with the net npls to net loans ratio at 2. 4 %, and gross npls to advances ratio at 9. 0 % for the overall banking sector. among the various categories of banks, foreign banks have the lowest levels of npls and domestic private banks are second in ranking. ( iv ) concentration in size and ownership structure is prominent. 5 large banks account for over half of the deposits and assets and remaining is held with smaller banks. the consolidation of the banking system generates efficiency and economies of scale as long as high system risks are well managed. ( v ) cross shareholding among banks and other financial institutions and the ownership of banks by big business houses and other segments of financial industry pose regulatory challenges for banking supervision where individual and group risk exposures in family owned banks need closer monitoring. from a development perspective the key factor that the pakistani banking industry has to work towards is enhancing access and improving financial intermediation, stimulating domestic savings, and broader financial innovation in services and products. undoubtedly, banks have realized high profits by maintaining sizeable spreads and keeping deposit rates low, while charging higher

philipp m hildebrand : current monetary policy situation and economic prospects speech by dr philipp m hildebrand, member of the governing board of the swiss national bank, at “ finanzinstitute thurgau bei der universitat konstanz ”, kreuzlingen, 26 april 2004. the complete speech can be found in german on the swiss national bank ’ s website ( www. snb. ch ). * * * due to the vigorous monetary and fiscal policy stimuli from the us, the global economy is expanding again. in switzerland, too, the upswing has become a reality. in the current year, the swiss national bank ( snb ) is expecting growth of 1. 5 % - 2 %, which slightly exceeds the present growth potential. since capacity utilisation is still fairly modest, such economic growth does not bring an immediate threat of inflation for switzerland at the moment. the downward risks still existing therefore justify a cautious monetary policy. in order to be able to ensure price stability in the medium term, the snb must, however, bring its expansionary monetary policy back on normal course again as soon as the economic recovery sets in and capacity utilisation improves markedly.