KARACHI, Feb 19: Finally the banks have lowered their lending rates in a belated response to repeated cuts in the State Bank discount rate and the government treasury bills rate. But a mere 69 basis points cut in the weighted average lending rate of all banks combined in December 2001 leaves much to be desired by the borrowers.

The latest State Bank statistics show that weighted average lending rate of all groups of banks fell from 14.10 per cent in November 2001 to 13.41 per cent in December showing a decline of 69bps.

“Banks have responded too late and the rate-cut is too small,” says vice president of the Federation of Pakistan Chambers of Commerce & Industry Haroon Rashid. “Banks should have responded to SBP signals for lowering the lending rates much earlier and they should cut the rate a bit deeper,” he said when reached by Dawn over telephone.

“The coming down of the weighted average lending rate does not mean we have got relief,” laments Vice Chairman of All Pakistan Textile Mills Association Mushtaq Vohra. “In practical terms the lending rates are all the same for most of the borrowers. Banks are still charging as high as 16 per cent markup though they also charge as low as 8 per cent from multinationals and blue chips.”

When reminded by Dawn that it was the banking norm world over to price loans according to the credit quality of the borrower Vohra said: “There are hardly 10-20 blue chips that are getting cheaper finance from the banks...for the rest of the borrowing community the interest rate is too high.” He said that the banks must narrow down the spread between the lending rates applicable on blue chips and other borrowers. “Because only then banks can expand their operations and help private sector in reviving the economy.”

SBP statistics show that the weighted average lending rate of all banks has recorded a full percentage point decline in the first half of this fiscal year coming down from 14.42 per cent in July to 13.41 per cent in December. But the central bank slashed its discount rate by four percentage points to 10 per cent during the same period and treasury bills rates also fell in line with it. It is against this backdrop that the one per cent cut in the banks lending rates falls short of the expectations of the trade and industry as well as of the central bank and the government.

“It is good to see that the banks have finally responded to the wake-up calls but there is still much to be desired,” said an official of the ministry of finance who declined to be named. Some central bankers make a similar statement—but they too do not want to be quoted.

The SBP started slashing its discount rate right at the start of the fiscal year in July to boost private investment and steer the economy out of a slump. But banks moaning under mountains of bad debts found it difficult to respond quickly to the SBP move because a liberal cut in lending rates would have cost them more than they could afford. Particularly so because they were not in a position to make matching cuts in deposit rates for that could have diverted the savers — who were already getting low returns — to the informal market.

The point that should be appreciated is that banks have made a one per cent cut in weighted average lending rates since July without making a significant cut in the deposit rate. The weighted average deposit rate of all banks stood almost unchanged at 4.96 per cent in December 2001 against 4.99 per cent in July that year.

The group-wise breakup shows that state-run banks (i.e. HBL, UBL and NBP put together) made the deepest cut of 1.33 per cent bringing down their weighted average rate from 15.11 per cent in November 2001 to 13.78 per cent in December. Foreign banks also made a substantial 80bps cut and their weighted average lending rate fell from 12.01 per cent to 11.69 per cent. But privatized banks (i.e. MCB and ABL combined) slashed their weighted average lending rate by only 33bps to 15.11 per cent and local private banks by 39bps to 13.77 per cent.

In the first six months of this fiscal year foreign banks made the deepest cumulative cut of 1.83 per cent in their weighted average lending rate pulling it down from 13.52 per cent in July to 11.69 per cent in December 2001.

Local private banks made the second deepest cut of 1.27 per cent bringing down their weighted average lending rate from 15.04 per cent in July to 13.77 per cent in December. The state-run banks made a cumulative cut of 72bps and privatized banks 25bps in their respective weighted average between July-December last year.