KARACHI, April 17: President Pervez Musharraf on Monday asked banks to share their record high profits with the depositors by increasing rate of return on deposits.
There has been a general complain by the depositors that they were getting negative return while the banks were making record profits for the last couple of years.
Addressing the senior officers of the State Bank of Pakistan here, the president said that the banks should increase the rate of return to share huge profits they were earning from the money of depositors.
Banking spread has gone up to record high at 7.25 per cent while the average return on deposits is just over 3 per cent. The low return is insignificant especially in the wake of 8.4 per cent inflation rate.
The president expressed the hope that the revenue collection would exceed by Rs50 billion by the fiscal end and export may touch $18 billion but said that the gains to the economy would be meaningful only when they reached to common people.
It was President Musharraf’s first visit to the State Bank for a briefing by Dr Shamshad Akhtar after she took over charge as governor of the central bank from January 1, 2006.
Commenting on the high trade deficit, he said that the government was striving hard to tackle the issue by enhancing exports to reduce the rising trade gap.
He indicated that the revenue collection was set to exceed the target of Rs800 billion by end of this fiscal year, however, he said that there was a need to further strengthen the tax-to-GDP ratio.
While briefing the president on the State Bank’s future vision and strategy, Dr Shamshad Akhtar said that the central bank was well on its way to implement second-generation reforms both in the financial sector, and within the SBP, in terms of strengthening governance standards and modernizing it in line with international best practices.
While highlighting the process of formulation and implementation of monetary policy, Dr Akhtar pointed out that the tightening stance of recent months had largely been effective in bringing inflation down, and that the central bank would continue to monitor liquidity conditions in the market very closely in order to keep inflation in check.
“The conduct of monetary policy tends to be quite complicated when the money supply grows at a pace faster than nominal GDP as this gives rise to inflationary pressures, and in doing so the contribution of government borrowing from the central bank has a major role to play, and needs to be checked,” she explained.
When talking about commercial banks’ profitability, the SBP governor pointed out that 80pc of the banking sector now belonged to the private sector, and that commercial banks had had record profits during 2005, which emanated from improved management of the banking sector, though it partly reflected gains from high interest rates.
She said that the central bank was in regular consultations with the banking sector and was encouraging them to devise innovative liability products to encourage savings which would prevent people from dissaving, and hence reduce the savings-investment gap.
While pointing out the insufficient absorption of credit on a provincial level, she talked about the urgent need to minimise issues related to documentation of land title.
APP ADDS: President Pervez Musharraf also called upon the banking sector to provide financing and banking services to the small and medium enterprises and expand their outreach to the rural areas where country’s 60 to 70 per cent population resides.
“The SME sector generates employment and gives boost to economic activity whereas agricultural sector would help boost production which would impact the GDP growth”, President Musharraf said.
He said that Khushhali Bank must perform and enhance its access to the remote areas. “I would like to see its presence in every district of the country”, he remarked.
In the past, he said the bankers, politicians and bureaucrats formed a nexus and committed “mega corruption” in the banking sector.
This would not be allowed now. He also hinted the transformation of the central bank as paperless SBP.
The president expressed concern over increasing inflation and stressed that it should be controlled and brought down.
“The poor of the country are concerned over the rising inflation and it should be brought under control. Price hike has to be checked”, he remarked, adding that it not only hurts the lot of the poor but also brings bad name to the government.
He also talked about government decision to spend Rs10 billion every year in Fata besides taking political and administrative reforms in the area.
