16 May 2004	Sunday	25 Rabi-ul-Awwal 1425

RAWALPINDI, May 15: Inflation increased during the month of April, State Bank of Pakistan (SBP) Governor Dr Ishrat Hussain said on Saturday. Talking to reporters after delivering a lecture on Banking Sector Reforms at Nust Institute of Management Sciences (Nims) , he said inflation went up due to increase in the prices of petroleum products in the international market which were now touching $40 per barrel mark.

Since the country depends a great deal on petroleum products import, the increase had a telling effect on inflation.

The other factor responsible for the rise in inflation, he said, was the increase in prices of wheat and flour. He said prices of these commodities went up before the harvest season and it remained to be seen if they fell with the arrival of fresh crop.

Mr Hussain said appropriate measures would be taken if inflation persisted.

Earlier, speaking at the seminar, the governor said the SBP was strictly implementing the reforms. He said it had been noted that we as a nation were good at devising procedures, but faltered on delivery.

Without strengthening enforcement, he said, these procedures, codes and reforms would remain a mere piece of paper. It was for this reason, he said, the state bank became strict on enforcement and today banks were scared of it.

Citing examples of some of the strict measures taken against the banks, Mr Hussain said, for the first time licence of a bank had been cancelled, ownership and management structures of four banks changed, several directors and bankers guilty of malpractices in the past barred from appointment in any bank, two auditor firms were blacklisted and composition of boards of two banks was changed.

These enforcement measures have worked and banks have now become cautious. The fear of action, he said, now deterred them from doing anything wrong.

Mentioning other set of reforms related to the corporate governance of the banking sector, he said, fit and proper criteria for appointment of chief executives and board members had been announced.

Dr Hussain said code of ethics had been devised for the bankers, and it was the responsibility of the chief executives of the respective banks to get them implemented. The lower the standard of ethics, the higher would be the risk to the people's money.

Checks and controls have been introduced to plug any loop holes. Measures taken in this regard include an audit committee, strong internal audit, restricting family presence on boards, barring presence of people belonging to brokerage houses on the board, setting up of transparent procedures for selection of external auditors, quality control and strengthening the overseeing function of the boards.

Dr Hussain said special measures were taken to make banks cater to the needs of lower income classes. Throughout the world, he said, middle class made up the backbone of the economy, but here we had a divorce between the banking sector and the middle class. Now, he said, products like mortgage financing, consumer financing and credit cards were meeting the needs of the middle class.

Establishment of credit information bureau, he said, was part of these reforms and this was done to check the defaulters from getting away with more loans.

Introduction of the disclosure and transparency policy is yet another achievement of the reforms, he said, and added that banks today had to regularly disclose their financial health and make public the loans written off. Besides, he said, there was a mandatory credit rating to keep the public aware about the standing of the banks.

Replying to questions, he said, poverty would decline once we get to the growth rate of six per cent provided other factors like international situation remained favourable.