The foggy January morning heralding 2004 characterized the sort of vision we suffer from, especially those managing the country's economy. That is why developments in the past two years didn't trigger as much innovation and strengthening of the business support infrastructure , as should have been the case.

Businesses grew largely on the deceptive bandwagons of easy liquidity and low interest rates rather than longer-lasting business strategies. Innovation was not the hallmark of the results achieved in 2003. This shortcoming was unmistakably visible in banking in spite of bankers' claims to the contrary.

During 2000-03, instead of expanding their core business, banks concentrated on investing in low-yielding gilt-edged paper and volatile equity securities. As a proportion of their total assets, lending shrank from 48.52 per cent in 2000 to 42.10 per cent by June 2003 while the share of investments went up from 15.89 per cent to 28.49 per cent.

More important is the fact that growth in investments registered a rise of 152.9 per cent. But with foreign remittances tapering off, trade gap widening, inflation showing clear signs of a rise, and the government waiting to borrow over Rs. 100 billion by June 2004, SBP must push up yields on future issues of government securities. This will saddle banks with losses on the stocks of low yielding securities they bought during the last two years.

Rumors are that banks holding disproportionately large stocks of these low yielding securities have been advised to sell these stocks as quickly as possible but given the imminent rise in interest rates, buyers are hard to find.

This points to a serious lack of vision on the part of senior bankers who failed to convince the SBP against rapid lowering of interest rates since November 2001. Many observers had pointed to the fact that the cuts in interest rates were unrealistically rapid but none among the bankers who matter paid heed to that advice. They fell for the doctored inflation estimates that were employed to justify the lowering of interest rates.

Now, when the fate of bank profitability hangs between the devil and the deep sea, not many bankers have aired their views about a rescue plan that could still work. What banks could propose is the buy-back of the low yielding paper by the SBP and its re-flotation on realistic yields. After all, the government has benefited for over two years from the unrealistically low interest rates.

In all fairness, banks that mobilized cheap funds for the government earlier should not be penalized by being forced to book losses on securities sold to them earlier at grossly low yields. It could undermine banks' commitment to promoting future flotation of government securities at competitive rates, and caste a shadow on the Central Bank's vision and monetary management expertise.

Besides over-investment in government papers, a more serious exhibition of misplaced priorities was that 2003 was devoted to under-cutting each other, much less to expanding the business pie by attracting new segments to avail of banking services.

Banks therefore appear ill-prepared to face a bigger challenge unfolding now - substituting a major chunk of their large-ticket corporate loans (which they will steadily lose to bond markets given banks' structural deficiencies that limit cost-cutting) with a profitable alternative i.e. consumer finance.

With pressure mounting for cost efficiency, business and industry is finding it increasingly difficult to foot the intermediation cost of the banking sector. The trend is not unique to Pakistan. It happened in most other developing countries and the large-end of the business and industry responded by borrowing directly from savers and investors through the bond and commercial paper mechanisms. With interest rates poised to move up, corporate borrowers will increasingly opt for paper flotation rather than expensive bank borrowing.

This trend will limit loaning choices confronting banks with a quantum change in the character of banking. All banks, especially those with networks stretching over a thousand branches or more, will have no option but to make consumer banking their mainstay.

It is this segment of the banking sector that needs to position itself for engaging in consumer banking in a big way. But, with some exceptions, banks generally over-looked the fact that expanding the market size required them to build a bridge between the industry and the consumers by streamlining the consumer-banking channel along secure lines.

In similar circumstances, large banks in many other countries responded by shifting their focus to consumer financing but they succeeded in this high-risk business because their economies were better organized in the sense that a variety of data bases existed that helped banks in selecting borrowers with bankable risk.

True, banks in Pakistan too entered this hitherto untapped market but given Pakistan's long track record of consumer loaning on a miniscule level and the virtual absence of credible consumer databases, whether banks made the right lending choices, is yet to be seen.

While banks have ventured into consumer financing, they appear to be doing so as a stopgap arrangement (getting rid of otherwise unmanageable liquidity). That is, perhaps, why what is conspicuous by its absence in the bank's recent consumer financing drive is a banking industry-wide effort to institutionalize the infrastructure and legal arrangements without which consumer financing cannot become a lasting major market segment. This attitude suggests that banks have not learned lessons from their lone consumer financing experience in the past fifty years - the Yellow Cabs Scheme (or disaster?).

Banks did not make any visible efforts to encourage setting up of a countrywide network of consumer credit rating agencies. Nor did they organize lobbies to influence the national legislature into enacting laws that would require employers to credibly certify employees' emoluments and job status, or demand strengthening of the state administrative infrastructure for execution of court decrees authorizing foreclosure and re-possession of assets from defaulters.

Employers often don't certify the status of their employees intending to avail a loan from a financial institution. Without enactment of legislation that obliges employers to provide this information, even employed (and therefore low-risk) consumers will remain handicapped in availing financial facilities. No employer is prepared to confirm that it has recorded the fact that its employee has availed a financing facility, nor accepts the responsibility for informing the lending institution in the event that employee leaves or is asked by the employer to leave. This is hardly the setting for promoting consumer finance.

The other thorny issue is the re-possession of financed assets. It remains a time-consuming process to obtain a court decree given the fact that courts are over-burdened with on-going cases. Court officials are sometimes relieved at the tactics used by defense lawyers to keep postponing case hearings in spite of the fact that, under law, banking courts must settle cases within 90 days.

Finally, while getting a decree may demand enormous patience, getting it executed by local law enforcement agencies demands far more, and in many ways. Undoubtedly, given the strange legislative pre-occupations of our parliamentarians, securing legislative cover for these arrangements does not sound a promising proposition but there is little evidence of such a move being afoot.

It reflects a dangerous lack of vision and commitment at the top of the banking industry. More worrying is the fact that instead of striving for institutionalizing these arrangements, to make a quick buck, they opted for large-scale investment in Pakistan's volatile equity markets.

This unhealthy development helped to push stock prices to wholly unrealistic levels, and dealt a severe blow to the credibility of the stock markets and share-trading practices. This is a classic example of finding easy, rather than lasting solutions to problems.

This tendency is manifested in more ways than one. While banks bend backwards to lease vehicles, they don't notice that in Pakistan's big cities, already there are too many vehicles compared to the capacity of the road networks to accommodate them. Traffic jams throughout the day, and loss of millions of man-hours in travelling are a proof thereof. Yet, banks don't find it a feasible proposition to finance mega projects for setting up railway networks in big cities through large syndicated loans.

These trends indicate a lack of vision, and of expediency taking over the better of the bankers' senses. The tendency to adopt short-termism and convenience as the way of life will prove suicidal in the longer-term. What we need are visionaries who foresee the likely results of adopting various strategies and make choices there from that can lead to both sustainable markets and steady growth.

Speedy, short-termist solutions that betray the perception that there is no tomorrow, have failed once too often. Bankers must get out of this trap as quickly as possible. It is the only sensible choice, not the one aimed at making quick but unsustainable profits.