Banks lend­ing to pri­vate sec­tor re­mains lack­lus­ter

The Pak Banker - - FRONT PAGE - Muham­mad Yasir

De­spite con­sis­tent slash in pol­icy rate of more 250 ba­sis points by Pak­istan's cen­tral bank in the last year, the lend­ing of com­mer­cial bank to pri­vate sec­tor re­mained lack­lus­ter to show neg­a­tive trend de­pict­ing a re­duc­ing role of bank­ing sys­tem in eco­nomic de­vel­op­ment and over­all busi­ness ac­tiv­i­ties of the coun­try.

Ac­cord­ing to sta­tis­tics of State Bank of Pak­istan (SBP), the credit to pri­vate sec­tor wit­nessed a neg­a­tive growth to stand at mi­nus Rs 81 bil­lion, show­ing re­cov­er­ies of the loans by com­mer­cial banks from bor­row­ers of var­i­ous sec­tors. These re­cov­er­ies of bor­row­ers were in­creased from the pre­vi­ous fi­nan­cial year which was recorded at Rs 56.2 bil­lion.

The cen­tral bank has re­duced its pol­icy rate from 8 per­cent to 6.5 per­cent in the pe­riod from July 2014 to July 2015 how­ever the loans of the com­mer­cial banks were por­tray­ing an ad­verse trend of de­clin­ing in­stead of in­creas­ing in the pri­vate sec­tor. The run­ning cap­i­tal of the pri­vate sec­tor have been re­duced sig­nif­i­cant- ly in the last one and half year due to steep de­cline in the petroleum prices and food prices glob­ally and lo­cally, said Deputy Gover­nor SBP Riaz Ri­azud­din.

How­ever, there are grave is­sues in econ­omy yet to be re­solved such as energy cri­sis that keep busi­ness­men away from ex­pand­ing their busi­ness in dif­fer­ent sec­tor, he said.On the other hand, the flood de­struc­tion in the coun­try will also hurt lo­cal econ­omy and pri­vate sec­tor which may also limit the bor­row­ers ca­pac­ity of do­ing busi­ness in the com­ing months, hence the bor­row­ing from com­mer­cial banks will con­tinue its level or present trend.

An­a­lysts are op­ti­mistic that the LSM growth will get im­pe­tus in the com­ing fi­nan­cial year as it nearly set­tled at 3.5 per­cent as com­pared to the tar­get of 7 per­cent for fi­nan­cial year 2014-15. The gov­ern­ment in its re­cent Fi­nance Act in­tro­duced var­i­ous scheme to en­cour­age pri­vate sec­tor which may ul­ti­mately pick up the credit de­mand of pri­vate sec­tor from the banks. SBP re­vised down the mark-up rates for var­i­ous re­fi­nance schemes at 6 per­cent in or­der to en­cour­age credit to pri­vate sec­tor, ex­ports and lo­cal pro­duc­tion through­out the coun­try.

In this re­gard, the cen­tral bank no­ti­fied that it re­duced the mark-up rates to 6 per- cent for banks bor­row­ers liv­ing in the flood af­fected ar­eas un­der re­fi­nance scheme for re­vival of SMEs & agri­cul­tural ac­tiv­i­ties in flood af­fected ar­eas of 2014.

The no­ti­fi­ca­tion stated that re­fi­nance un­der the scheme shall be pro­vided to the banks at 3.00% p.a whereas the banks shall be per­mit­ted to charge a max­i­mum spread of 3.0% p.a. from the bor­row­ers. SBP has re­vised down the markup rate for ex­porters avail­ing fi­nanc­ing fa­cil­i­ties un­der Ex­port Fi­nance Scheme (EFS) to 4.5% p.a. from 6 per­cent with ef­fect from July 01, 2015 whereas Long Term Fi­nanc­ing Fa­cil­ity (LTFF) has been slashed to 6 per­cent from 7 per­cent ear­lier.

Ja­panese Prime Min­is­ter Shinzo Abe, sec­ond right, ac­com­pa­nied by Chief Cab­i­net Sec­re­tary Yoshi­hide Suga, right, poses as he re­ceives a 38-page re­port from Taizo Nishimuro, sec­ond left, chair­man of the Ja­panese gov­ern­ment's ad­vi­sory panel on the history of the 20th cen­tury and on Ja­pan's role and the world or­der in the 21st cen­tury, and Shinichi Ki­taoka, deputy of the panel, at Abe's of­fice in Tokyo Thurs­day, Aug. 6, 2015. The gov­ern­ment panel com­mis­sioned by Abe to re­view the coun­try's re­cent history has praised Ja­pan's post­war eco­nomic growth and com­mit­ment to paci­fism but also cites lack of rec­on­cil­i­a­tion with China and South Korea.

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