KARACHI, March 13: Major local banks now find it difficult to make clean lending to foreign banks because that means enabling the foreign banks to snatch the customers of the local banks by offering them cheaper credit.

Foreign bankers say three out of five major banks have stopped clean lending to them by forming a sort of cartel but executives of local banks deny the charge.

“One semi-privatized bank and two state-run banks have lately stopped clean lending to foreign banks by making a cartel,” said treasurer of a big foreign bank who refused to go on record. The treasurer of another leading foreign bank said the same thing but he, too, declined to be named.

“The FMA (Financial Market Association) knows about it and the SBP has been apprised of this,” said the foreign banker adding that forming cartels was an unethical practice and the FMA should take notice of it. FMA is a body representing both local as well as foreign bankers.

FMA officials were not available for their comments but a source close to the Association said some foreign bankers had briefed FMA officials on this issue.

“So far our bank is concerned we have not made clean lending to any bank for past several years,” said an official of one of the two state-run banks accused of having stopped clean lending to foreign banks. “Our liquidity requirement is so huge that we cannot afford to make clean lending. But at the same time we have also stopped clean borrowing.”

Clean lending means lending without any security and as such this carries more weightage than repo lending or lending against some security while calculating the capital adequacy ratio of a bank. That is why banks normally tend to keep clean lending at a low level. They are more likely to do so when it comes to lending clean at a time when their own liquidity level is low or when the lending is meant for the banks that they think carry a high risk.

“Clean lending to foreign banks is going on,” said a senior official of one of the two partly privatized banks that, foreign banks say, has stopped lending.

“There are 40 and odds banks in the market. If some banks have stopped clean lending to foreign banks they can turn to others,” said senior executive of one of the two state-run banks that has allegedly stopped clean lending to foreign banks. “There is an angle of reciprocity involved here,” he remarked referring to the fact that foreign banks themselves do not make much of clean lending. “Above all there could be some commercial considerations (for the banks that stop clean lending to others),” the banker said though he would not admit that his bank had stopped clean lending to the foreign banks.

Officials of major local banks also say that whereas they have been more generous in offering clean funds to the foreign banks the latter had very small limits for clean lending. “If a major local bank wants to make clean borrowing from a big foreign bank the foreign bank may not lend it more than Rs200 million or so,” said treasurer of a local bank.

“But that is because of the fact that our balance sheets are much smaller than those of major local banks,” retorted treasurer of a foreign bank. In some cases the balance sheet of a major local bank is ten times than that of a foreign bank. Five major banks claim more than 60 per cent of the total deposits