Banking efficiency
ADDRESSING a meeting of Presidents/CEOs of all commercial banks and development finance institutions in Karachi, State Bank Governor Ashraf Mahmood Wathra pinpointed some of the glaring deficiencies in the working of the banking system and stressed the need for measures to remove them speedily. He expressed dissatisfaction with the operational activities and performance of the banks and issued important directives to enhance their efficiency. Of the many issues that he took up an important one was that of average spreads which according to him remained high and needed to be rationalized. He said the average spread should not be more than 4.5 percent. The governor warned banks that the SBP shall "review the position by the end of June 2015 and may take regulatory measures to lower the spread".
The governor also asked banks to focus on private sector lending and deposit mobilisation. Referring to the inefficiencies of the banks' overseas offices he said that there was an urgent need to improve their performance. Wathra also advised banking companies to improve their foreign exchange related services for small customers. He said that the staff needs to be appropriately trained, and products must be developed to assist customers in the easy execution of their genuine foreign exchange transactions such as fees or medical expenses. On import-export trade, he urged the bank chiefs to make efforts to maintain foreign exchange reserves. To this end, banks should discourage the import of non-essential items by reviewing their internal credit policies and, on the other, facilitate the exporters to promote growth in exports. Regarding Islamic Banks, the SBP governor said they should share the rewards with their customers appropriately in line with the surge in their profits. He said that if they did not do so, SBP will apply Shariah compliant measures to address the issue.
It is a long list of do's for the banks which the latter must seriously ponder over. There is general complaint from the public that the service standards of the banks are low and the staff is not very helpful. This is specially so in the case of the big ones in the public sector. ATMs don't work properly and in case of complaints there is no prompt response from the concerned staff. There are also many hidden charges of which the bank customers are not told and they come to know only after the deductions have been made.
A serious issue is that of banking spread - the difference between the deposit and lending rates which constitutes the bulk of bank profits. Generally depositors are offered extremely low rates of profit while they are charged high rates for borrowing. This is against the norms of ethical banking. The common depositors are at the receiving end and helpless. Another issue is that private sector lending and deposit mobilization. The country's banks have lately shown a tendency to skimp on lending to business and industry and, instead, pay more attention to buying government papers. This militates against the need to stimulate economic activities in the country. There is an urgent need to improve the capacity of bank staff through proper training to upscale their service standards and enable them to serve their customers better.