THE varying levels of economic development across the country, skewed income distribution, and lack of enough banks’ focus on inclusive finance has led to an uneven geographical pattern of credit distribution. The security situation in some regions has made matters worse.

The new socio-economic realities are making dents in old demand and supply patterns of bank finance. “The need of the hour is to prompt banks to look at their lending policies and adjust them to emerging realities and opportunities,” says a former deputy governor of the State Bank of Pakistan (SBP).

And, the federal and provincial governments and the SBP must also play their due role in making this happen. “We can’t afford to continue to delay the process of politically, socially and environmentally balanced and sustainable economic growth.”

‘What can you expect from Balochistan, Fata, Gilgit-Baltistan and AJK except poverty and ignorance-produced issues of insecurity if all of them combined get below 1pc of total bank lending.’

Building his argument he says, regardless of banking technicalities involved in this matter, KP is bound to feel aggrieved if its share in outstanding loans remains at 1.1pc whereas that of Islamabad is at 8.5pc.

“Similarly, what can you expect from Balochistan, Fata, Gilgit-Baltistan and AJK except poverty and ignorance-produced issues of insecurity if all of them combined get below 1pc of total lending.”

Population census is long overdue and reliable data on details, including potential credit demand, of industrial and commercial enterprises in provinces and federating units is not available. This makes it quite difficult to ascertain what factors keep credit distribution very low in certain regions.

But going by geographical distribution data, we can see where bank credit has heavily concentrated and where people or businesses may be craving for it (see table).

“Variation in province-wise credit concentration is quite natural given the gaps between the size and economic characteristics of population, income level and intensity of industrial and commercial activities,” says head of one of the top five banks. But even after factoring in these and other similar factors, should the variations be exactly what that we see now?

That’s the thing the SBP must probe and that ‘s something banks should also look at to form a more informed view of the potentials and perils of future credit growth.

SBP Governor Ahsraf Wathra recently told a business gathering in KP that the share of the province in bank credit was 1.13pc of the total whereas its share in bank deposits is 7.4pc.

According to media reports, he opined that insecurity in KP in last 10 years had dented the emotions of traders and businessmen and had made bankers more cautious (in lending money there).

And due to dearth of large scale manufacturing and demand for finance, banks had very little interest (in lending in the province). But KP businesses disagree.

“It’s not just because of low credit demand that banks haven’t been lending extensively in KP.. It is also because they don’t devise and implement policies for more inclusive financing. And this is equally true in case of other smaller provinces and federating units as well,” retorts a businessman-turned politician from the KP.

Though bank credit concentration in Sindh is at a decent level of 38pc there is a feeling among local businessmen that this share should have been higher given the fact that Karachi is the country’s economic and commercial hub.

“During 1990s we saw many businesses shifting from Karachi to Punjab and we also saw that businesses owned by those from outside Sindh stopped expansion activities here,” recalls an official of Karachi Chamber of Commerce and Industry. “This trend weakened during the Musharraf regime but didn’t reverse.”

Central bankers say only a professional study can determine if banks are being choosy in lending to some geographical locations at the cost of others. But they admit that excessive government borrowings from banks in the past many years have led to a lethargic approach of banks in reaching out to the private sector as a whole, and on meeting sectoral needs in particular.

“Unwise geographical segmentation of bank lending could also be one of the manifestations of this approach,” says a senior SBP official.

Bankers point out that in location-wise credit distribution what matters most is the location of the bank branch where bank loan is approved and granted. This means that the loan disbursement in a particular area may appear to be low in banking statistics owing to lack of demand.

Published in Dawn, Business & Finance weekly, March 14th, 2016