ISLAMABAD: The State Bank of Pakistan (SBP) on Monday asked banks to consider enhancing the credit limits of oil marketing companies (OMCs) and refineries in line with increase in international oil prices to ensure uninterrupted supply chain.

At a virtual meeting presided over by Governor SBP Dr Reza Baqir and attended by top representatives of banks and OMCs, the central bank made it clear that default of an oil company could not be used as a justification to cripple the entire oil industry and resultantly the national economy.

The SBP leadership, which also included a deputy governor, told the banks to look into the matter realistically as the exchange rate had declined and international prices had gone up significantly. “You cannot close your eyes to the ground realities and choke the system,” the bankers were told. “It is an issue of the country and all have to play their due role,” a participant quoted one of the SBP participants as saying.

The meeting was told that banks were reluctant to ext­end credit limits because of Hascol’s default despite almost 100 per cent increase in international oil prices over the past year or so. The oil industry told the SBP that not only the OMCs but the refineries also were facing challenges they normally provide 60 to 70pc of diesel.

It was noted that harvesting season was just round the corner and unless oil marketing companies and refineries were facilitated, the agriculture sector would badly suffer. The banks were asked to examine their risks in fair manner, put in place risk mitigation measures and increase credit limits where these are necessary.

The meeting constituted a five-member committee comprising heads of National Bank of Pakistan, Habib Bank Limited, Bank Alfalah, Bank Al Habib and MCB Bank to come up with reasonable proposals as to how to increase credit limits.

The oil industry maintained that the issue was such that it could lead to a crises bigger than the country faced in May-June 2020 when the country’s transportation had come to a halt for a few days. The SBP’s attention had also been drawn by the federal government ‘towards insufficiency of credit lines and reluctance by the banks to open letters of credit for oil imports due to various apprehensions’.

The government had written to the central bank that the country was heavily reliant on imported fuels and to meet the requirements OMCs had to import petroleum products like diesel, petrol and jet fuel to meet local demand.

Published in Dawn, March 1st, 2022