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    An Overview of The Changing Financial-Services Sector: Ayesha Afzal Assistant Professor

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    Fizzah Zahid
    This document provides an overview of the changing financial services sector in Pakistan presented by Ayesha Afzal of the Lahore School of Economics. It discusses the theory of financial intermediation and the role of banks and other financial institutions. It notes that banks play a crucial role in corporate financing in Pakistan, providing over 97% of total financing. The document also outlines various types of financial service firms and banks, traditional and recent services offered by banks, and trends affecting the financial services industry globally and in Pakistan like deregulation, technological changes, and globalization.

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    An Overview of The Changing Financial-Services Sector: Ayesha Afzal Assistant Professor

    Uploaded by

    Fizzah Zahid
    26 views13 pages
    This document provides an overview of the changing financial services sector in Pakistan presented by Ayesha Afzal of the Lahore School of Economics. It discusses the theory of financial intermediation and the role of banks and other financial institutions. It notes that banks play a crucial role in corporate financing in Pakistan, providing over 97% of total financing. The document also outlines various types of financial service firms and banks, traditional and recent services offered by banks, and trends affecting the financial services industry globally and in Pakistan like deregulation, technological changes, and globalization.

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    Lecture 1

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    This document provides an overview of the changing financial services sector in Pakistan presented by Ayesha Afzal of the Lahore School of Economics. It discusses the theory of financial intermediation and the role of banks and other financial institutions. It notes that banks play a crucial role in corporate financing in Pakistan, providing over 97% of total financing. The document also outlines various types of financial service firms and banks, traditional and recent services offered by banks, and trends affecting the financial services industry globally and in Pakistan like deregulation, technological changes, and globalization.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    26 views13 pages

    An Overview of The Changing Financial-Services Sector: Ayesha Afzal Assistant Professor

    Uploaded by

    Fizzah Zahid
    This document provides an overview of the changing financial services sector in Pakistan presented by Ayesha Afzal of the Lahore School of Economics. It discusses the theory of financial intermediation and the role of banks and other financial institutions. It notes that banks play a crucial role in corporate financing in Pakistan, providing over 97% of total financing. The document also outlines various types of financial service firms and banks, traditional and recent services offered by banks, and trends affecting the financial services industry globally and in Pakistan like deregulation, technological changes, and globalization.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 13

    Lahore

    School of Economics

    An Overview of the Changing Financial-Services Sector


    Ayesha Afzal Assistant Professor

    Lahore School of Economics

    Introduc5on to Theory of Financial Intermedia5on


    The Essence of Financial Economics
    Op3mal Investment Absence of Arbitrage Equilibrium in Financial Markets

    Arrow Debreu (1954) Neoclassical Perfect World


    Financial Assets are Fairly Priced Informa5on Symmetries Decit and Surplus Units can locate each other.

    Lahore School of Economics

    Transac5on Costs Search Costs Verica3on Costs Monitoring Costs Enforcement Costs

    Monitoring and Supervision

    Asymmetric Informa5on Adverse Selec3on Moral Hazard Audit

    Funds Lent Value crea3on through nancial services and instruments

    Funds Lent Risk management agents on behalf of depositors

    Surplus Units (Households)

    Financial Intermediary (Bank)

    Decit Units (Firms)

    Failure to meet Financial Obliga3ons Lead to Systemic Risk

    Default Risk Concentra3on on Credit Books

    Lahore School of Economics

    Why Financial Intermediaries are Important in Pakistan


    Situa5on of Capital Markets in Pakistan
    2006 2007 Equities Listed Companies Listed Capital (Rs in million) Market Capitalization (million) New Companies Listed Listed Capital (in million) 651 515,029.54 2,766,583.84 9 14,789.76 654 671,269.47 4,329,909.79 14 57,239.93 653 750,477.55 1,858,698.90 10 15,312.12 651 814,478.74 2,705,879.83 4 8,755.74 644 919,161.26 3,268,948.59 6 33,438.45 2008 2009 2010

    Debt Instruments New Debt Instruments Listed Amount Listed (in million) 3 3,400.00 3 6,500.00 7 25,256.97 1 3,000.00 4 5,650.18

    Source: Karachi Stock Exchange

    Lahore School of Economics

    Why Financial Intermediaries are Important in Pakistan


    Table 1: Corporate Financing by Financial System (PKR in Billion)
    Year 2004 2005 2006 2007 2008 2009 Banks 873 1076 1270 1520 2016 2065 IPO 21.70 9.80 3.00 4.90 6.90 1.10 TFC 0.00 6.60 3.00 4.00 12.60 0.00 Total Financing 894.70 1092.40 1276.00 1528.90 2035.50 2066.10 Bank Financing as % of Total 97.57% 98.50% 99.53% 99.42% 99.04% 99.95%

    Source: KSE, SBP, SECP

    Lahore School of Economics

    1-6

    The Dierent Kinds of Financial Service Firms Calling Themselves Banks


    Commercial Banks Savings Banks Cooperative Banks Mortgage Banks Community Banks Money Center Banks Investment Banks Merchant Banks International Banks Wholesale Banks Retail Banks Limited Purpose Banks Bankers Banks Minority Banks National Banks State Banks Insured Banks Member Banks Affiliated Banks Virtual Banks Fringe Banks Universal Banks

    Lahore School of Economics

    1-7

    The Financial Service Compe5tors of Banks


    Savings Associations Credit Unions Money Market Funds Mutual Funds (Investment Companies) Hedge Funds Security Brokers and Dealers Investment Banks Finance Companies Financial Holding Companies Life and Property-Casualty Insurance Companies

    Lahore School of Economics

    1-8

    Tradi5onal Services Oered By Banks


    Carrying Out Currency Exchange Discounting Commercial Notes and Making Business Loans Offering Savings Deposits Safekeeping of Valuables Supporting Government Activities with Credit Offering Checking Accounts Offering Trust Services

    Lahore School of Economics

    1-9

    More Recent Services Oered by Banks


    Granting Consumer Loans Providing Financial Advice Managing Cash Offering Equipment Leasing Making Venture Capital Loans Selling Insurance Policies Selling Retirement Plans

    Lahore School of Economics

    1-10

    Offering Security Brokerage and Investment Banking Services


    Underwriting Securities Offering Mutual Funds and Annuities Offering Merchant Banking Services Offering Risk Management and Hedging Services

    Lahore School of Economics

    1-11

    Trends Affecting Banks and Other Financial Service Firms Today


    Service Prolifera3on Rising Compe33on Government Deregula3on Increased Interest Rate Sensi3vity Technological Change and Automa3on Consolida3on and Geographic Expansion E-Banking and E-Commerce Convergence Globaliza3on

    Lahore School of Economics

    Banks hire dull people and train them to be even more dull. If they look conservative, it's only because their loans go bust on rare, very rare occasions. But (...)bankers are not conservative at all. They are just phenomenally skilled at selfdeception by burying the possibility of a large, devastating loss under the rug.

    Lahore School of Economics

    Globaliza;on creates interlocking fragility, while reducing vola;lity and giving the appearance of stability. We have never lived before under the threat of a global collapse. Financial Ins;tu;ons have been merging into a smaller number of very large banks. Almost all banks are interrelated - when one fails, they all fall. The increased concentra;on among banks seems to have the eect of making nancial crises less likely, but when they happen they are more global in scale and hit us very hard. True, we now have fewer failures, but when they occur .I shiver at the thought.
    Nassim Nicholas Taleb The Black Swan

    ** Taleb has been credited with making predictions regarding financial crises and making a fortune (over USD 12 Bln) out of the 2008 crisis - Taleb is a visiting professor at Wharton and University of Paris Dauphine

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