September 3, 2002	Tuesday	Jamadi-us-Saani24,1423

KARACHI, Sept 2: The governor, State Bank, Dr Ishrat Hussain said on Monday that the State Bank is evolving dollar-financing mechanism, under which more dollar funds at cheaper cost will be made available with scheduled banks for providing to importers and exporters.

Addressing Aptma members at a luncheon meeting, the governor said at when the government is looking for safe avenues to make dollar financing out of its huge reserves it would be most appropriate that larger funds under dollar financing are made available for external trade.

Presently, he said banks are short of dollar funds because a minimum of 20 per cent could be kept for maintaining dollar accounts with banks.

Therefore, Dr Ishrat Hussain said that the State Bank will provide funds under dollar financing to scheduled banks who would become in a position to give more funds at a cost not more than 4 per cent.

The governor also disclosed to APTMA members that the State Bank is evolving a mechanism under which loan of sick industrial units will be first written off and then handed over to CIRC (Corporate & Industrial Restructuring Corporation) for rehabilitation.

It was well appreciated by the participants of the meeting who felt that by this way a chance will be given to the owners to put their act together and do what was needed to run an industrial unit. He said that out of a list of 309 sick units, 130 units have been restructured by the CIRC.

The governor did not agree with a view of the Aptma chairman Nadeem Maqbool that high interest rates adversely affect the operating cost of business particularly for the weaker companies.

On the contrary Dr Ishrat Hussain suggested that textile industry should try to keep healthy balance sheets for getting cheaper finances from banks who have to ensure that no further increase was made in non-performing loans.

In support of his argument the governor further said that high interest rates did not affect the borrowing because when weighted average rate was at 14.5 per cent textile sector borrowing was at Rs90 billion but last year when the rate was at 12 per cent borrowing declined to Rs30 billion.

Consequently, he said it totally depends on demand and supply rather than the rate itself.

He said that tax rate for banks is much higher than prevailing in the world. The finance minister, the governor said has agreed to reduce it to 35 per cent in next three years which will also help in bringing down the interest rate as well as intermediation cost. He said with a decline in non-performing loans and reduction in staff by 12,000 employees through golden hand shake scheme the intermediation cost has also come down.

As a result of this, the governor said, presently banks have excess liquidity and are looking for clients but fear of adding to non-performing loans make them hesitant to take decisions.

Referring to exchange rate, the SBP governor said, “I would not like to hurt exports and will support export trade at any cost and for this purpose the central bank is constantly monitoring the exchange rate and influence the rate wherever needed.”

Though the SBP has adopted free float mechanism for exchange rate but with continuous monitoring the central bank did not allow the dollar/rupee parity to fall below Rs49 to a dollar. If the SBP was not doing so the rupee may have appreciated up to 54 to 55 to a dollar, he added.

He advised the textile millers to be transparent in their books of account and try to keep them healthy because banks are reluctant to finance weak balance sheets. Earlier in his address of welcome the chairman Aptma Nadeem Maqbool drew the attention of the governor towards a number of issues related to textile industry vis-a-vis banking sector.

He said that under the Textile Vision 2005, an investment of Rs333 billion was to be made by year 2005, out of this 60 per cent was to be financed by banks. Unfortunately, to-date, he said, the entire fixed investment of over $500 million per annum for the last three years has been made by textile entrepreneurs form their own resources.