KARACHI, April 5: Three nationalized commercial banks or NCBs have brought down their combined weighted average lending rate from 14.08 per cent in January to 13.19 per cent in February 2002. They are (i) National Bank (ii) Habib Bank and (iii) United Bank.

“This 89 basis points cut is a major relief for our clients who braved a 30 basis points increase in the combined weighted average lending rate in January,” said head of credit division of one of these banks.

The lending rate of the NCBs had moved up from 13.78 per cent in December 2001 to 14.08 per cent in January 2002.

The latest State Bank statistics show that the lending rate of all the banks put together fell from 13.10 per cent at end-January to 11.96 per cent at end-February. This 1.14 per cent decline in the average lending rate may appease the agitating businessmen who have been bitterly criticizing the banks for being too slow in responding to rapid cuts made earlier in SBP discount rate and treasury bills rates.

With the 1.14 per cent cut in average lending rate of all the banks combined in February this year the overall lending rate of the banks has declined by 2.46 per cent between July 2001 and February 2002. Foreign banks have outmatched others by reducing the average lending rate by 3.46 per cent to 10.06 per cent during this period: semi-privatized banks i.e. Muslim Commercial Bank and Allied Bank put together had cut their average lending rate by only 85 basis points to 14.51 per cent and private commercial banks have cut their lending rate by 2.97 per cent to 12.07 per cent. Specialized banks have kept their average lending rate almost unchanged at 14.09 per cent since July.

In February alone foreign banks made a 1.08 per cent cut in their average lending rate bringing it down from 11.14 per cent in January to 10.06 per cent in February. But the two partly privatized banks reduced their average lending rate by only 25 basis points bringing it down from 14.76 per cent in January to 14.51 per cent in February. Local private banks outmatched all others by making a major cut of 1.41 per cent in February. Their average lending rate moved down from 13.48 per cent in January to 12.07 per cent in February. On the contrary the average lending rate of specialized banks inched up from 14.07 per cent in January to 14.09 per cent in February.

The SBP gradually reduced its discount rate from 14 per cent in July 2001 to 9 per cent in January 2002. It also cut the six-month treasury bills rate by 6.2 per cent during this period. Obviously the aim was to boost the private sector investment for a faster economic growth. In fiscal 2000-01 Pakistan’s GDP had grown only 2.6 per cent against the target of 4.5 per cent.

But during July 2001-January 2002 the weighted average lending rate of all the banks combined declined only by 1.32 per cent that invited severe criticism by businessmen who were expecting a much larger rate cut. This also bewildered the economic wizards of the SBP and the ministry of finance who also believed that the banks should have made deeper cuts in lending rates.

But the banks — particularly the NCBs — had their own story to tell.

Heads of NCBs had taken the position that a huge drag of non- performing loans; high tax rates; higher cost of operations and the risk involved in lending to poor quality borrowers had made it difficult for them to make an across-the-board reduction in their lending rates.

But the demand for a deeper rate-cut voiced by the Federation of Pakistan Chambers of Commerce and Industry was heard by the top man of the country who reportedly asked banks to review their lending rate policy. Hence a major cut in average lending rates in February.

LENDING-DEPOSIT RATE GAP: The banks not only made a combined reduction of 2.46 per cent in their weighted average lending rate between July 2001-February 2002 but they also managed to reduce the gap between the lending and deposit rate.