SBP chief blames banks for inefficiency: High banking spread
By Our Staff Reporter
KARACHI, Dec 18: State Bank Governor Dr Shamshad Akhtar on Monday held the uncompetitive environment and inefficiency of banks responsible for high banking spreads, which deprived the depositors of positive returns.
“Extraordinary banking spreads in Pakistan in recent years are an evidence of lack of competition and efficiency in Pakistan’s financial markets,” she said.
The Governor was addressing the two-day international conference on “Fixed Income Market Development in Emerging Market Economies” at SBP, Karachi.
Fixed income market development is the key agenda for the next phase of the financial sector reforms in Pakistan, she said adding that the new approaches and instruments need to be promoted to enhance the depth and accessibility of fixed income markets.
A well developed fixed income market helps expose banks to competition, which in turn helps improve their efficiency, she said.
Dr. Akhtar disclosed that a committee was now deliberating on a number of issues and expected to provide a set of recommendations to promote the debt market. The revival of PIB auctions with recent announcement of 30 years PIB float give an indication of the government’s inclination to develop the long-term yield curve, she said.
The SBP governor said that Pakistan’s private corporate debt market remains underdeveloped and is below one per cent of GDP. The major drivers of financial assets in Pakistan are deposits and government bonds, whereas corporate bond issuances remain a miniscule portion, with the total outstanding issues at Rs49.3 billion (0.64 per cent of GDP) at end FY06, in comparison with Korea at 21.1 per cent and Malaysia at 38.2 per cent.
Pakistan’s corporate debt history is relatively short as issuance of “Term Finance Certificates” (TFCs), a popular corporate paper, was allowed only from 1995 onwards.
There is a broad recognition in Pakistan that fixed income market development is the key agenda for the next phase of the financial sector reforms, she said. Besides, alleviating the key impediments of the government securities market highlighted earlier, new approaches and instruments need to be promoted to enhance the depth and accessibility of fixed income markets.
The governor said that the Infrastructure Project Development Facility (IPDF) and the Public Private Partnership (PPP) approach of allowing the private sector to bid for and execute the design, building and operating of large-scale public projects will be critical to evolve infrastructure finance structures.
“This will not only help arrange financing for the infrastructure projects, but will also add to the demand for fixed-income bond issuances and increasing the pool of assets available for securitization,” she observed.
