KARACHI, Jan 6: The State Bank wants the banks to expand the scope of KIBOR or Karachi inter-bank offered rate and make it a benchmark for pricing corporate loans.

A sub-committee of Pakistan Banks Association has been working on it for past several months and the stage seems set for expanding the KIBOR from six months to one year, senior bankers told Dawn.

SBP Deputy Governor (Banking & Foreign Exchange) Tawfiq A. Husain would meet the members of the sub-committee at his office on Wednesday. The committee headed by ABN Amro Country Manager Naved A. Khan is expected to tell him that the banks cannot link all types of lending to KIBOR and only corporate lendings could be linked to it.

Initially the central bank wanted the banks to develop sort of prime lending rates so that the change in the SBP monetary policy immediately reflect in the same. But it had to drop this idea because prime lending rates were bound to differ from bank to bank. The SBP then asked PBA to help in developing KIBOR in such a way that it can respond to the changes in monetary policy immediately besides serving as a benchmark for banks to price their loans.

Senior bankers say the State Bank of Pakistan want to develop the scope of KIBOR from currently six months to at least one year because it wants banks to lend more on floating rates rather than on fixed rates. SBP officials believe that lending at fixed rates could expose banks to risks that may become too difficult to manage over time.