July 22, 2002	Monday	Jamadi-ul-Awwal 11,1423

SHORTAGE of commercial credit which used to be the constant complain of borrowers from banks has given way to surplus credit in the look out for credible borrowers.

The State Bank of Pakistan and the senior executives of banks have been far more alert in the area of lending as well as choice of borrowers following the non-performing loans of over Rs300 billion and the collapse of several public sector development finance corporations, and privatized banks like the Bankers Equity and several new public sector banks. In addition, the state of the large public sector banks like the UBL and the Habib bank is being looked into with minute care by possible new buyers.

On the other side, the National Accountability Bureau (NAB) is looking into the cases of large wilful default at the initiative of the State Bank and trying to recover as much of the defaulted amount as possible and punish the wilful defaulters.

The senior bank executives have also become careful in respect of new laws, although few of those who gave hefty loans in return for large kickbacks have been punished. This is one area of bank reforms which needs looking into and the NAB should be able to produce some positive results. Industrial investors also complain that if one out of five or six of their units is in default, they are being denied new loans for a new company which they hold as very unfair in the corporate sector and very unlike what happens in the rest of the industrial world.

While large job creating industrial investment is the need of the hour, and finance minister Shaukat Aziz and the State Bank governor Dr Ishrat Hussain talk of single digit lending rate as the need of the hour in a country where that rate had crossed 25 per cent, that is still way off or a slow step by step coming down.

Meanwhile, as the demand by real investors has come down, the banks are diverting their credit towards consumers finance at 15 or 16 per cent which they find very profitable. And with foreign investment very sluggish, even the foreign banks like Citibank are opting for consumer finance like the car finance, house building finance and money for other consumer durables. So there is a consumer spree in a very poor country, while the government is talking of poverty reduction as its top most priority.

Industrial investors protest against shortage of power, uncertainty of water supply and the rising gas rates which upsets the feasibility plan they had prepared for their production and sale and not every one is ready to set up their own power units, and so hold back their ‘investment’.

Investors talk of the manner the government is coming under the pressure of external agencies and reducing import duties like 10 per cent reduction in the last two years. There is political uncertainty too and possible change in economic policies following the change of government under pressure from the unemployed masses wanting a better deal. Under such circumstances the National Credit Consultative Council has provided for a credit ceiling of Rs175 billion for 2002-03 which is 10 per cent more than last year to finance an economic growth of five per cent and hold down the inflation rate at four percent.

And the private sector has been assigned Rs94.7 billion in 2002-03, although far less has been used last year. The exact amount was not specified. The private sector is now relying on other sources of credit than bank finance which comes with rigid conditions, like the term finance certificates which are quicker to obtain and many credible companies have obtained them in plenty. And on bi-national credit institutions like Pak-Kuwait investment bank which last year gave two billion to the investors. Mian Mohammad Mansha is now obtaining Rs225 million in TFC’s through the Faysal Bank and the Arif Habib Securities, to make it easy for him to takeover the UBL.

Overseas Pakistanis who sent $2.389 billion last year as home remittances are also ready to become partners of credible companies.

Meanwhile, a number of industrialists who are also exporters are arguing that they would not be needing much loans from the banks at high interest rates if the CBR would refund the sales tax they had paid, immediately after their exports. The CBR has become quicker, but not quick enough for the exporters who complain of a delay of six to twelve months. The rich men are able to find alternative sources for loans including from Pakistanis overseas. The government wants the poor to rely on the micro credit bank and the Khushhal bank for small loans and benefit by the Khushhal Pakistan programme. But this too is a slow process because of the teething problems of such institutions and the need to ensure the money is not lost and does not go in the to the hands of the exploiters. But credit for them too at 15 per cent is too costly and has to come down greatly so that they can really benefit by such schemes.