KARACHI, Jan 15: The Federal Finance Minister, Shaukat Aziz on Tuesday gave a ‘wake up call’ to all the banks in Pakistan urging them to cut down further on their interest rates, narrow down their intermediary cost, offer long and medium term project financing, and productively utilize the 1.7 billion dollars foreign exchange deposits to finance foreign trades.

He urged the bankers to bring out innovative products, develop new techniques of risk management, offer medium and long term lending and raise funds by offering term finance certificates (TFCs) and other instruments.

The minister was addressing a meeting of the top bankers at the State Bank of Pakistan.

Immediately after this session, that lasted for two hours, the finance minister, in a meeting with the Karachi Chamber of Commerce and Industry, urged the local traders to “keep mounting their pressures on the banks for lowering the interest rates.” Shaukat Aziz declared: “The government is with you.”

A senior banker heading a foreign bank in Pakistan is reported to have contested the assertion that the current weighted average lending rate is 14 per cent. He maintained that it was lower than 14 per cent, though these lending rates ranged between 9 to 16 per cent.

The Governor of State Bank, Dr Ishrat Hussain, who was also present in the meeting is reported to have reminded the banker that average weighted rate of 14 per cent has been worked out on the basis of the reports and statements received from the banks.

The President of the Karachi Chamber of Commerce and Industry A.Q. Khalil in his address of welcome also complained of commercial banks charging 14 to 16 per cent interest rates, “while the rates in India is within the vicinity of 12 per cent.” He said, “there is no justification for having such a high level lending rate in the face of relatively low return on deposits, contained inflation and improved loan recovery.

According to a banker Shaukat Aziz reminded banking community that SBP has allowed them to raise funds through flotation of TFCs, which would facilitate them to go for long and medium term lending.

He assured the bankers of government offering them very soon the bonds against tax refunds to help them brighten up their balance sheets.

Pakistan’s industry, he said, is fund-starved for which banks are in a position to offer financial assistance through innovative products. Textile industry, he informed bankers, has received investment of two billion dollars in last two years in form of revamping and modernization of the industry.

His other advice to the bankers was to develop hedging products, equity investment, cash-management, venture capital, remittance products and treasury areas also offered opportunities to bring out many new products.

And still the automation in banking has opened up many new areas of products and usher an era of competition.

Shaukat Aziz wanted the bankers to put to productive use the 1.7 billion dollars foreign exchange deposits with them. These deposits can be used to serve the interest of the bank as well as of Pakistan’s international trade. “The SBP has not imposed any restriction for the use of these dollar funds”, a banker quoted the finance minister.

Banks, he said, are real catalyst to activate the economy and time has come that bankers shake up their age-old thinking and prepare themselves for new challenges.

APP adds: The minister said that the government has provided enabling environment. However, he warned the banks that were lending in rupees in Pakistan against deposits in Dubai in connivance with the “Hundi” operators of stern action.

He said such operations will not be tolerated and asked the banks to stop such activity at once and resolve the issue with the central bank.

Talking about the initiatives, he said, the SBP has asked the National Accountability Bureau (NAB) and other law enforcement agencies not to take any action against any bank without the prior approval of the SBP. He emphasized that no decision was worst than the bad decision, if such a decision is taken professionally and your conscience is clear.

He said the government policies led to the stability of macroeconomic sector, and the time has come when the banking sector should wake up and play their due role. He said there is no restriction on opening new branches where they are economically viable as the population of the country was “under bank”. SBP has already relaxed the rules in this regard and the branches of the Public sector banks have already been rationalized, he added.