Indeed, banking sector dominance is an impediment to the fundamental principle of market competition; it leads to inefficiencies and therefore to sub‐optimal outcomes in the loan market, which may jeopardize the stability of the financial system.
Consider the following: (i)  When the banking sector has to face competition from a well developed local currency bond market, it is forced to improve the efficiency of its operations and develop corporate financial services beyond primary lending. In Pakistan, the banking sector faces very little competition from the corporate debt market.