syed salim raza : reflections on financial sector dynamics keynote address by mr syed salim raza, governor of the state bank of pakistan, at the institute of bankers, karachi, 18 june 2009. * * * it gives me great pleasure to chair this event organized by the institute of bankers and to share some thoughts with senior bankers and the distinguished personalities attending. i wish to congratulate all those who have passed the ibp examination and have qualified for the awards to be distributed today. they deserve much appreciation on their achievement. i am sure the banking industry will utilize their knowledge for the larger benefit of our society and economy. i would like to take this opportunity to share some views on emerging trends in the financial sector. even though financial institutions in pakistan have remained largely insulated from the shocks of the global financial crisis, we cannot ignore the implications of events which started in the summer of 2007 in the global financial system. the crisis brought forth the realization that organizations which are not just too - big - tofail but also too - interconnected - tofail, are the major source of systemic risk. it reinforced the fact that complete reliance on mathematical model - based risk management systems is insufficient in assessing the wide array of risks faced by the financial sector, some of which need a more qualitative analysis and judgment. most importantly, it showed how its protracted duration severely impaired the basic function of the financial sector i. e. efficient allocation of resources in the process of financial intermediation. as i will elaborate, the regulatory focus in pakistan has strived to prevent and mitigate the occurrence of these factors as the financial sector continues to evolve and progress. the banking sector in pakistan has undergone a sea change in the last few years. the unprecedented performance in terms of profitability, in building up a resilient capital base as reflected in the aggregate capital adequacy ratio ( car ), implementation of basel ii and stringent provisioning requirements etc. have all contributed in providing a cushion against shocks from both the external and domestic macro - financial environment. banks in pakistan have been able to withstand the headwinds from weakening macroeconomic fundamentals since fy07. now that the economy is poised for a turnaround, the banking sector has an even more emphatic role to play in supporting the real sector by meeting its financing needs. admittedly, banks face a challenging environment going forward : first, there is increased credit risk in the industry, a large part of

. eu ) ). 2 see stephen g. hall & george s. tavlas & yongli wang, 2022. " drivers and spillover effects of inflation : the united states, the euro area, and the united kingdom, " discussion papers 22 - 13, department of economics, university of birmingham ( https : / / ideas. repec. org / p / bir / birmec / 22 - 13. html ). 3 see bianchi, francesco and melosi, leonardo, inflation as a fiscal limit ( september 21, 2022 ). frb of chicago working paper no. 2022 - 37 ( https : / / papers. ssrn. com / sol3 / papers. cfm? abstract _ id = 4205158 ) 7 / 7 bis - central bankers'speeches