April 1, 2003	Tuesday	Muharram 28, 1424

LAHORE, March 31: The future of the banking industry in Pakistan lies in exploring the hitherto “unexplored opportunities” in the areas of small and medium industrial sector, agriculture, and consumer financing as the corporate sector’s demand for banking credit is drying up.

This was stated by National Bank of Pakistan (NBP) president Syed Ali Reza while addressing the businessmen at the Lahore Chamber of Commerce and Industry on Monday. LCCI president Yawar Irfan Khan welcomed the NBP chief.

Mr Reza said the small sector’s credit demand was estimated to be around Rs1,000 billion. The banks were meeting only 10 per cent of the demand which meant that there was a vast market of Rs900 billion for the banks to explore.

Answering a question he said his bank was working hard to evolve some kind of mechanism to finance the small and medium sector, which he called as the future of the banks, because a different system of financing was needed to offer credit to this sector. However, he warned the SMEs, “you will also have to achieve a certain minimum level of documentation and management to qualify for banking credit. After all, we cannot give money to a completely undocumented business.”

Similarly, the credit demand of the agriculture sector was understood to be about Rs300-400 billion while the banks, including the Agriculture Development Bank, were offering only Rs50 billion to the sector. The demand for consumer financing was assessed to be between Rs2,000 billion and Rs3,000 billion. “These are the areas and markets the banks will have to tap in the coming years,” the NBP president said.

WRITE-OFF SCHEME: Speaking about the central bank’s guidelines on the write-off of irrecoverable loans and advances, Mr Reza said his bank had so far settled 51 cases involving about Rs500 million under the said scheme.

Besides reducing the non-performing loans (NPLs), he said, the other objective of central bank’s guidelines as outlined in its circular (no. 29) issued on October 15 last year was to give a “cover” to the banks willing to settle the infected loans. “No one in future will come to the banks and ask as to why had they allowed discounts to their borrowers,” he said in an obvious reference to the NAB’s fear in the minds of the bankers.

Mr Reza said his bank had played a proactive role in getting a clarification from the central bank about its circular in order to facilitate the borrowers. He said the NBP had always worked for a settlement of non-performing loans (NPLs) with its borrowers instead of taking the matter to the courts.

He told a questioner that his bank was willing to advance working capital to the projects whose accounts had been settled under the central bank’s loan write-off scheme provided the fresh credit was considered as “performing loan”. He said the objective of the scheme was to revive the sick industry. “Unless these projects are provided the working capital or finances for balancing, modernization and restructuring (BMR), they cannot be revived,” he said. He added all the banks would, however, have to sit together to resolve the issue.

The NBP president said his bank was in favour of an extension in the last date of April 14 for applying for write-off under the scheme in view of an encouraging response from the borrowers. However, a decision in this regard would be taken by the State Bank. He also clarified that the borrowers would not have to pay interest on the settled amount.

INTEREST RATE: Mr Reza claimed that the interest rates had substantially declined in the recent months and the pricing of the credit was done on the basis of risk involved. He said it was for the first time that the “differential” in the interest rates for good and bad clients had widened. He said while the interest rates for good projects had come down substantially, the bad companies were paying the same old price for the credit they obtain from the banks.

He said the NBP was going to start Islamic banking shortly. The first such branch would be inaugurated in Karachi in June or July. It would follow the opening of another 4-5 branches in other parts of the country.