KARACHI, Oct 15: A black hole seems to have appeared in the banking system as billions of rupees are drained every day while banks struggle to maintain the required liquidity.

Bankers reluctant to openly discuss their difficulties informed Dawn of a serious liquidity crunch in the sector despite frequent steps taken by the State Bank to provide additional liquidity and almost daily injection of billions of rupees in the system.

Many bankers felt that the State Bank needed to change the tight monetary policy as they believed that it had been causing shortage of liquidity, putting the entire banking system at risk.

Banking circles confirmed that small banks were in a difficult situation as large banks had stopped lending to such banks because of risk factor and general shortage of funds.

High-ranking officials of two small banks said they were in need of liquidity as they were facing difficulty to make large payments. They said large banks have almost excluded them from the list of their clients.

Only a few days back, bankers in Pakistan were confident that the collapse of financial system in the US and Europe would have a mild impact on banks here, but developments over the last week showed that the impact penetrated into Pakistani banking system faster than expected.

Banks want people, the government and the State Bank to understand their difficulties.

“If you tell people that banks are facing a tough time, it will cause panic among account-holders which will only aggravate the situation,” said a senior banker, requesting anonymity.

A small businessman, who has an account in a local Pakistani bank, said he was receiving calls from other bankers to shift his deposits and get 16 to 17 per cent return.

“Banks want to engage my five million rupees for three to six months at a much higher rate. I suppose I will get increased return on my deposit if I shift it,” said Samad Jaffery.

Pakistani banking system has started to reflect what is happening in the US and Europe. Bank-to-bank lending has reached a minimum level, small banks are not getting money from large banks and they have to borrow as high as 35 to 40 per cent for overnight.

An informed source in the banking industry said credit to industry is shrinking and the demand for credit would see more difficult time in the next coming weeks.

The State Bank on Wednesday injected Rs18.250 into the banking system for three days but bankers said it was not enough.

“The situation is deteriorating since Ramazan. We were expecting that the liquidity would come back, but it never did,” said a banker at a large Pakistani bank.

However, some bankers believe that banks are hoarding cash to face the full impact, likely to reach Pakistan, from the collapse of financing system in the Western part of the globe.

Pakistani banks are still intact but little shaky about the future.

Pakistani banks have very little risky exposures in real estate, stocks and derivates, but de-shaping of the entire financing system would force them to bring a change for their protection.