KARACHI, May 4: The State Bank of Pakistan said on Friday that the banks have failed to expand lending to private sector despite ample liquidity.However, the SBP observed that the credit demand of the private sector has substantially reduced as it borrowed heavily in the last few years.
The first meeting of the Private Sector Credit Advisory Council (PSCAC) was held in Karachi, chaired by the Governor of SBP, Dr Shamshad Akhtar.
The PSCAC has replaced the National Credit Consultative Council (NCCC) as a consequence of the decision taken in NCCC’s meeting of July 4, 2006, to redefine objectives and functions of the PSCAC.
The governor said despite ample liquidity in the system, commercial banks have not been able to expand lending due to low demand for private sector’s credit.
The SBP governor said while there was a growth in working capital finance, the demand for fixed investment credit was subdued.
Speaking about credit disbursements to private sector, Dr Akhtar said during July-April 2007 net credit to private sector grew by over Rs266 billion (or 12.6pc) against Rs339 billion (or 19.8pc) in the corresponding period of fiscal year 2006.
The meeting observed that in some cases, corporate sector is meeting requirements through retained earnings or foreign borrowings.
In some sectors, banks have deliberately slowed down to re-assess and develop their own capacities to lend more prudently.
The process of mergers and acquisitions in a number of banks also impacted private sector credit as most “acquired banks” slowed down their business.”
The governor told the participants of the meeting that the SBP had already submitted a microfinance strategy to the prime minister for which he has issued instructions for development of an action plan.
Regarding strategies for development of infrastructure, housing, SME and Islamic banking, the SBP has formed various working groups. These groups will soon submit their recommendations.
Similarly, the Agricultural Credit Advisory Committee (ACAC) has submitted its report on constraints facing agricultural credit and provided effective recommendations, she added.
The SBP governor asked the council members to share their views on issues likely to be faced in the growth of private sector lending over the next five to 10 years.
The substantial growth in credit disbursement will be a challenge for the banking industry unless the real sector problems are addressed.
The members discussed in detail the impediments in credit disbursements and suggested ways and means for their redressal.
The National Bank of Pakistan gave a brief of bank’s experience in outsourcing certain aspects of the Rozgar Scheme, which proved very successful.
The bank has already disbursed an amount of Rs1.3 billion under the scheme to 13,000 applicants.
On consumer financing, the governor was of the view that despite some apprehensions in consumer financing in some circles, the delivery of credit to household sector is a positive development, but both central bank and banks need to enhance vigilance to avoid over leveraging of individuals/household which may enhance the probability of default.
She also conveyed widespread public concerns regarding high bank service charges and procedural issues related to credit cards.
She recommended to the Pakistan Banks’ Association (PBA) to consider adoption of a standard schedule of charges and procedures with appropriate flexibility to banks to charge rates within a pre-defined range.
On issues raised by the representatives of Pakistan Trade Development Authority relating to need for trade-related product development, it was decided that a working group may be formed with PBA’s participation to specifically evaluate related possibilities.
The meeting was attended, among others, by Azhar Kureshi, executive director, development finance group, directors of banking policy and regulations, SME and microfinance, monetary policy, agricultural credit departments of SBP, heads and representatives of commercial banks, the Pakistan Banks’ Association, the Federation of Pakistan Chambers of Commerce and Industry, agriculture chambers, representatives of federal and provincial governments and other trade bodies.
