KARACHI: Governor, State Bank of Pakistan, Syed Salim Raza, said on Thursday that banks were stable and well capitalised and were less affected by the global financial crisis.

However, the data posted on the bank’s website showed that banks have entered weakest economic zone as economy has rejected absorbing banks’ credit, leaving banks to rely on government and government-owned Public Sector Enterprises (PSEs) borrowings.

Speaking at a programme, the SBP governor said Pakistan has been less affected by the current global crisis as country’s banks are well capitalised and their assets and liabilities are squarely domestically based.

He did not touch the extremely narrowing credit growth for the private sector which reflects highly critical economic situation.

Banks have been investing heavily on treasury bills or relying on public sector borrowing while the main economic wheal, consisting of manufacturing, industry and trade, have practically stopped borrowing.

The latest report shows that credit growth to private sector squeezed to a record low and is still falling each day, reflecting the worsening health of economy.

‘How banks can survive and remain stable in isolation while the economic growth has plunged to the lowest level of the decade,’ said a banking expert and analyst.

The credit demand has dried up that would ultimately hit the banking industry as it happened in the developed economies where banks collapsed first, resulting in the fall of economic growth and finally credit demand fell to the lowest level and still failed to absorb liquidity at almost zero interest rate.

Analysts and experts watching closely the meltdown of financial system in the US and other developed economies came out with the findings that show that if an economy does not borrow from the banking system, it would certainly derail the entire financial system.

The government has borrowed heavily from the commercial banks as borrowed amount reached Rs148 billion during the last 10 months.

The PSEs also borrowed record Rs140 billion during the same period that protected banks from possible shocks that could come from lowest credit growth for private sector which fell to just Rs25 billion in 10 months.

The government might reduce or end its borrowing from the commercial banks as inflow of $1.5 to $2 billion is expected within few months to help the internally displaced people.

About one million people could be displaced from the areas under military operation in the northern part of Pakistan.