Banks may not easily give up over-investing in government debt papers but they are now making larger loans to the private sector and assessing changing credit market needs.

Their advances to deposit ratio (ADR) has dropped to 45.5pc as of September 2016 from as high as 75.2pc in December 2008, despite a rise seen in private sector credit flows in the last fiscal year that looks set to remain in sight during the current year as well.

In FY16, banks lending to the private sector almost doubled to Rs446.5bn from Rs223.8bn in FY15 and this year, too, growth in such lending remains impressive (Rs324.5bn up to Feb 3 against Rs249bn in a year ago period).

“But this healthy development should not hide the fact that the ADR, which is a better indicator of banks’ efficient intermediation, is not improving and they are still not trying to penetrate deeper into a dynamic, vibrant, resilient and fast-changing credit market,” says a former SBP deputy governor.

The credit market is undergoing a transformation in the country as elsewhere in the world. New businesses are coming up including tech start-ups, digital marketing platforms, super stores, eateries and SMEs that fill in hitherto unattended gaps in value chains.

Old businesses are joining the bandwagon of digital marketing, partnering with tech-start-ups, and profitable industries are diversifying their business interests. Agribusiness is undergoing a transformation. Private sector educational institutions and health delivery facilities are being modernised and expanded.


“Ensuring compliance of regulatory guidelines and, at the same time, drawing up and implementing their own policies that are responsive to the changing needs of the credit market are a must for our banks to grow steadily”


The borrowing mix of companies is changing in terms of tenure and preferred sources of financing. Those in need of bank funds want quicker solutions to their problems, more room for renegotiating the terms of loans and better post-loan services. In this category also fall a large number of consumer credit seekers.

These are some of the things the banks have to take into account. They must come up with credit policies based on well-mined, well-classified facts, not perceptions. The policies must be more inclusive, more comprehensive and more responsive to peculiar needs of various types of borrowers.

“Sadly, though, the SBP prudential regulations alone serve as the only guide book for banks when it comes to lending; and banks get excited only by the prospect of the CPEC-related projects,” says an official of American Business Council in a lighter vein.

“Ensuring compliance of regulatory guidelines and, at the same time, drawing up and implementing their own policies that are responsive to the changing needs of the credit market are a must for our banks to grow steadily.”


The credit market is undergoing a transformation in the country as elsewhere in the world. Local banks have yet to tap into the huge credit market of tech start-ups


Tech start-ups that came under the spotlight in 2013 have arranged a few hundred million dollars from foreign sources, including foreign venture capitals, but local banks have yet to tap into this huge credit market.

Banks can enter this market through special purpose vehicle (SPV) companies, besides directly lending to the fragmented needs of start-ups but no such exercise has been undertaken so far, not, at least, in a big way, people associated with start-ups say.

In the past few years banks have rolled out new financial products, some Shariah-compliant and others conventional, and topped up by fintech like the ones for consumer financing.

“Many other products are designed with more flexible repayment features, or they are improved versions of previous tools of inland and overseas money transfer. Then, there are e-payment products and B2B (business to business) cash flow management tools,” says an official of the Pakistan Banks Association.

Some products have also been rolled out for small businesses and farmers. One such facility is that product details are now available in Urdu and users that are not financially literate can walk into bank branches and seek help from designated desks set up for this purpose.

Apart from product development, bankers say they are also working on two important things to tap more of the unexploited potential of the credit market.

First, most banks have improved their market and credit risk management over five years. Better risk management has been a key factor in boosting agricultural credit over the years. It is also due to smarter risk management tools and some reliance on private credit bureaus that mortgage lending and consumer finance is growing.

Secondly, “human resource quality has improved over the years and in-house and external training of bankers is now a top priority. Banks now realise that without this, catering to the emerging needs of the credit market is just too difficult. ” says a senior official of the NBP.

Published in Dawn, Business & Finance weekly, February 20th, 2017

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