KARACHI: Former central bank chief Dr Ishrat Husain took commercial lenders to task on Wednesday for their laziness, which has resulted in vast gaps in banking services in agriculture, small and medium enterprises (SMEs), low-cost housing and personal finance segments.

In his keynote address at the fourth Digital Banking and Payments Summit organised by TerraBiz, Dr Husain said he was “not satisfied” with the progress that the banking sector has made since his time as governor of the State Bank of Pakistan (SBP) in the early 2000s.

“The size of the banking industry is small relative to the economy and its peers,” he said while noting that banks are overly focused on the corporate sector, high net worth individuals, trade financing and fee-based activities.

“Their networks in under-developed areas are confined to deposit mobilisation rather than lending,” he said.

Referring to the industry-wide advances-to-deposit ratio (ADR) of less than 50 per cent, he said banks invest heavily in government securities. Meanwhile, the share of SME credit has gone down to 7pc from a high of 17pc some years ago.

Investments of commercial banks in risk-free government securities as a percentage of deposits are about 70pc — which is “not what banks should be doing… this is stifling private-sector growth”.

“The share of agri-credit has remained stagnant. The number of bank accounts is still low compared to neighbouring countries. Pakistan lags behind in terms of market development, access to finance, depth of financial institutions, credit to private sector, insurance penetration and development of capital markets,” he said.

Dr Husain said he expects the upcoming five digital banks to raise the share of e-banking to “80-90pc in the next five years”. With Rs46.4 trillion, the quarterly value of paper-based transactions exceeded the corresponding figure of Rs35.4tr for e-banking in January-March 2022, the latest period for which data is available on the SBP website.

“The currency in circulation has doubled in 10 years. The new five digital banks will have a substantial market (to serve),” he said.

Digital banks will have to ensure their transaction cost is lower than that of the existing providers, that their customers have greater convenience, their fees and service charges are lower while the speed of transaction is faster, he said.

Earlier, entrepreneur associated with the upcoming digital bank Raqami Nadeem Hussain said people don’t keep their savings in banks because banking returns don’t even offset the impact of inflation.

Irfan Lodhi, chief executive of Mashreq Bank Pakistan, one of the upcoming digital banks, said new entrants to the financial sector should focus on meeting the unfulfilled needs of the market rather than trying to make profits in the immediate run.

Published in Dawn, February 9th, 2023