KARACHI, Jan 28: Presidents of two big banks—Habib Bank and the National Bank of Pakistan—dropped broad hints on Monday of their inability to bring down lending rates on the plea that the drag of non-performing loans has put a burden of 4 to 5 per cent fixed cost on the banks.

“A reduction in this fixed cost to 2 to 2.5 per cent will enable the banks to consider lowering lending rates”, Ali Reza, President of the National Bank of Pakistan bluntly told a gathering of businessmen on Monday.

“You (businessmen) recover the cost of raw material and all inputs from your customers, so is the case with the banks, which have to recover the cost of non-performing loans from their customers,” the NBP President argued.

A plea made by Dr Mirza Ikhtiar Baig, Chairman of the Standing Committee on Banking Credits and Finance of the apex trade body to segregate the portfolio of bad loans from the portfolio of overall outstanding loans apparently went unnoticed by the bankers. He also wanted a precise definition of the wilful defaulters so that “genuine borrowers are not penalized.”

The occasion was a seminar on: “The Reform of Bankruptcy and Insolvency Laws and Procedures” organized by the Federation of Pakistan Chambers of Commerce and Industry on Monday inaugurated by the Governor of State Bank of Pakistan Dr Ishrat Hussain. Six speakers including two top bankers, a chief executive of a private leasing company, a corporate lawyer and two senior business leaders addressed the seminar.

Bankers questioned the logic of businessmen demanding as a matter of right the lowering of lending rates after a reduction in discount rates. “The discount rate in past went up from 10 per cent to 14 per cent,” the NBP President reminded the businessmen and asked “did the banks raise the lending rates then.”

Earlier, Dr Ishrat Hussain in his key note address has come down, rather harshly, on the bankers for denying the borrowers lending facilities, once their names appear on the Credit Information Bureau (CIB). “This is a mechanical and bureaucratic application,” the Governor said and urged the bankers to use “your judgment in making a difference between a wilful defaulter and the one who has become a victim of circumstances beyond his control.”

He said bankers are paid hefty salaries to make a judgment and take prudent lending decisions. Otherwise, “I can appoint a clerk if the job is just to check the names on CIB only.”

“Who are the wilful defaulters and who are not” was then one of the issues that was discussed quite at length and consumed considerable time.

“Any borrower who does not service his debt on the plea that his company is sick, but he maintains the same lavish lifestyle with Pajeros, frequent foreign visits is a defaulter,” Zakir Mahmood, president of the Habib Bank remarked in his presentation.

He informed the businessmen that bank depositors had subsidized the lending for whatever the industrial development that has taken place in the country.

The NBP president Ali Reza said that balance sheets given by the lending companies give a very deceptive financial picture, negative ratios and assets are under-valued.

“In your own interest give a correct and transparent balance sheet and document your transactions,” he advised.

The NBP president said that banks follow the international accounting systems and have to show the provisions for the NPLs in their balance sheets.

He agreed that majority of the loan defaulters were genuine borrowers who became victims of the circumstances and deserve sympathetic consideration.

Ali Reza’s rough estimate was that 65 per cent defaulters are the genuine borrowers and only 35 per cent are ‘wilful defaulters’. But this small segment of wilful defaulters have to pay about 80 per cent of the total default loans.

Businessmen complained that a small group of elite businessmen, hardly five per cent of all borrowers are obliged by the bankers by offering them loans on 9 to 11 per cent when “for us it is 17 to 18 per cent.”

Bankers conceded that good customers with good track record and a hefty business are being “well looked after.” “Why should we keep our funds idle when good customers are around,” one of them quipped.