LAHORE - The last two years have been a challenging period for the banks globally. When around the globe, a number of household names have either perished or they needed large amounts of public money to keep their doors open, said MCB Bank President and CEO Atif Bajwa. Addressing a pre-budget 2009-10 seminar organised by The Nation, Bajwa elaborated that in contrast, banking sector in Pakistan remained strong and healthy. Much of the credit for this must be given to the government and the State Bank of Pakistan for putting in place a prudent regulatory mechanism and oversight, he said, adding that the regime over a number of years. Specifically, the State Banks prudential regulations ensured that excessive risk taking was avoided. He highlighted in detail the challenges faced by the banks and opportunities for the banking sector in the country. He further said the capital adequacy ratio for the bank sector was healthy, at 12 percent in December 2008, which is 2-3 times the current average for some developed economies. The MCB CEO went on to say that it was true that our banking sector has fared better than many of our international peers. Pakistani banks have not been immune to the broader economic challenges facing the country - the contraction in growth, a sharp rise in interest rates and a period of double-digit inflation have all created very specific challenges, Atif Bajwa said. At present, the most important issues facing the banks include a surge in non-performing loans, pressure on profitability of the sector from rising costs due to inflation, higher provisioning levels and a slowdown in the overall banking sector growth while heightened operating risks particularly from a deteriorating law and order situation. The MCB CEO pointed out that the banks are also facing broader strategic challenges, affecting the way of do business. Customer service, banking convenience and financial inclusion are increasingly important themes for the industry, he said and added that an important competitive challenge for banks is to develop efficient alternative distribution channels to the 'bricks and mortar branches-this will become increasingly critical in terms of banks ability to reach new and existing customers in a cost effective manner. Bajwa pointed out that the bad debts of the banking sector have grown dramatically over the last two years as the economy has slowed and interest rates have been raised sharply following double-digit inflation. The banking sector saw non-performing loans in 2008 surge by around Rs100 billion and a further Rs35 billion in the 1Q of 2009. The NPL ratio rose by over 200 basis points in 2008 to end the year at over 9%. Banking sector provisions increased by around Rs90 billion from December 2007 to March 2009. He said the consumer segment has suffered from a sharp decline in disposable income due to inflation and a contraction in the labour market. MCB sponsored the pre-budget seminar of The Nation.