KARACHI, July 9: President of the Federation of Pakistan Chambers of Commerce and Industry Tanvir Ahmad Sheikh has sought two-year moratorium on debt servicing to banks for the textile sector because of the acute financial hardships and other business problems.

The FPCCI leader mentioned the crisis, through which the textile sector was passing, in his address of welcome to Mr Ali Raza, the president of National Bank of Pakistan who spoke on the subject “Bilateral and regional investment opportunities for Pakistan.”

“The Textile Industry is in crisis since the moment I was born,” Mr Ali Raza replied in a single line to all the pleas made by the Federation chief. However, he spoke at length on Mr Tanvir’s observation on increasing interest rates on banks loans and impact on the viability of business and the growing banking spread between the lending and deposit rates.

“The high mark up rates of 12 per cent to 16 per cent are highly detrimental to the industrial activities in the country,” the FPCCI leader pointed out while giving a warning that it could lead to serious default and closure of several industrial units in the country.

His plea to the NBP president was to provide loans to industry at affordable rates on priority.

He said that the banks offered Rs1.04 trillion credits to the private sector in last three years (2003-04 to 2005-06) but the credit in ten months of 2006-07 shrunk by 22 per cent to Rs266 billion from Rs340 billion. This drop in bank credit off-take for the private sector, he said, shows a slump in business activities.

Mr Raza did talk on the subject he had chosen but devoted a considerable part of his speech to explaining the causes for increase in the bank interest rates and the bank spread.

The interest rate on bank loans, he pointed out, is linked with Kibor designed about five or six years ago by the central bank. The Kibor is determined by the rates on which Treasury bills are offered for auction, which is set by the monetary policy, an exclusive domain of the central bank.

He recalled that bank rates during decades of eighties and nineties were very high as compared to existing rates.

Mr Raza called bank spread - the difference between the lending and deposit rate - a myth as it was not unusual in many banks of the world. He said the banks offered current and saving accounts and also various term deposits.

“Who stops you to put your money in various term deposits and earn more profit,” he asked adding that people in Pakistan prefer to keep their money in cheques operated saving accounts.

He called it a typical Pakistani culture problem to keep their money liquid rather than hold it in various term deposits or in the funds that offer attractive returns.

As for increasing lending rate, he said if the component of consumer loans will increase in the total loan portfolio, the average interest rate is bound to go higher. “Price of consumer loans world-over is high and Pakistan is no exception,” he said.

The smaller the amount of loan the higher will be the interest rate, he argued to illustrate with an example of Bangladesh-based Grameen Bank that charges 26 per cent on Rs15,000 loan.

Speaking on his subject the NBP president said that his bank had positioned itself to take advantages of the fast changing world. He informed the businessmen that the NBP had now branches in each of Central Asian countries, Afghanistan, China, India, and Bangladesh. He disclosed that a NBP branch was being opened in Saudi Arabia’s capital Riyadh.

He identified the Middle East as the supply provider because it rolls in liquidity with a small population that can hardly absorb 20 per cent of the total available capital; the South Asia and China are the demand creators.

There is a nexus of these countries, which is bound to work for long in future. By setting up a branch network in this area, the NBP has positioned itself to take full advantage of the coming opportunities.

“We see demise of Wes-based multinationals and emergence of new powerful multinationals in East,” he said while informing the audience of the expansion of Chinese and Indian multinationals.

The present world is characterised by excessive liquidity, mobility of capital with dismantling of exchange regulations, domination of regional trade grouping and a quantum jump in tourism. As for the regional outlook he focussed on Middle East, South East Asia, East Asia and Central Asia.

He said that Pakistan’s policies should be designed such to attract investment in infrastructure, power and agriculture. “We need to invest in education and human skills,” he added.