KARACHI, June 23: Karachi Stock Exchange Chairman Yasin Lakhani told a committee on Thursday that banks were too slow in honouring their commitment to provide Rs20 billion margin financing for phasing out conventional badla financing or carryover transactions (COT).

The committee, of which Mr Lakhani is also a member, had met at the State Bank to discuss how to speed up margin financing and let the stock market grow. Director, Banking Policy Department of the central bank, Kamran Shahzad, was in the chair.

The KSE 100-share index after scaling an all-time high of 10,303 points on March 15 has been on the decline with intervals of short-lived increase. On June 23, the index closed around 7,418, showing a huge decline of 2,885 points or more than 28 per cent since March 15. The market capitalization also shrank to Rs2060 billion from Rs2779 billion, a loss of Rs719 billion or a little less than 26 per cent.

Mr Lakhani says that the lack of margin financing is a key impediment to the road to recovery of the stock market.

The economy has grown by 8.4 per cent against the target of 6.4 per cent; a business and investment-friendly budget has been announced; Pakistan and India are making historic peace moves; corporate profitability is excellent and PTCL has been privatized at last. “All these things should have helped the stock market make a big recovery. But on the contrary, the market is finding it difficult to come out of the March crisis,” says the KSE chief.

He thinks the reluctance on the part of banks to offer liberal margin financing is prolonging a bearish trend in stock trading.

The banks have so far offered in margin financing less than five per cent of what they had promised in April even if one includes the margin finance they have provided directly -— and routed through the National Clearing System of bourses.

On April 23, 15 banks had assured State Bank Governor Dr Ishrat Husain of pouring in Rs20 billion into the stock market to help smooth transition of COT to more sophisticated and transparent margin financing. Dr Husain had sought the help of banks on the advice of Prime Minister Shaukat Aziz who wanted them to steer the stock market out of crisis.

The banks were: National Bank, Habib Bank, United Bank, Muslim Commercial Bank, Allied Bank, Faysal Bank, Metropolitan Bank, Union Bank, Bank Alfalah, Bank Al-Habib, PICIC Commercial Bank, Saudi Pak Bank, Askari Bank, KASB Bank and Bolan Bank.

In two months to June 23, these banks have failed to keep their promise and only two or three of them have provided less than a billion rupees in margin financing —- much to the chagrin of the stock exchange and its regulator, the Securities and Exchange Commission of Pakistan. “My bank has so far provided Rs509 million margin financing,” said Ajaz Rahim, head of investment banking at Faysal Bank, when reached by Dawn over telephone.

Mr Rahim was one of the four bankers who attended the margin financing committee meeting on Thursday. Pakistan Banks Association Chairman Shaukat Tarin could not be reached immediately.

Sources privy to the meeting told Dawn that in a couple of days the central bank would summon heads of all the 15 banks that had promised to make a combined Rs20 billion margin financing.

Margin financing will take over badla financing by August 26, as investors have started offloading 8.25 per cent of their COT volumes every week, starting from June 7.

The Thursday meeting of the committee on margin financing was attended among others by Commissioner Securities at SECP Shahid Ghaffar. The sources said the commissioner had assured the meeting that he would to look into the complaints of cumbersome documentation required for margin financing.