KARACHI, Nov 12: The combined advances of four state-run banks saw a reduction of Rs6.5 billion in one year ending on September 30, 2002.

The banks are (i) First Women Bank (ii) Habib Bank Ltd. (iii) National Bank of Pakistan and (iv) United Bank Ltd. (UBL has now been privatized).

The cumulative stocks of advances of these four banks fell to Rs401.6 billion at end-September 2002 from Rs408.1 billion at end-September 2001. “The advances of NCBs have fallen mainly due to heavy credit retirement by state-owned corporations including KESC,” said a senior official of a big state-run bank. The banker explained that the government had retired Rs22 billion of KESC loans by issuing T-bills as part of a Rs30 billion plan to re-capitalize the power utility in May 2001.

He said another reason for reduction in cumulative advances of NCBs is that the private sector retired the seasonal credit much faster than in the past. “And some private sector borrowers made very little or no fresh borrowing at all.”

Except for First Women Bank which has a small market share the other three state-run banks have about 50 per cent share of the total advances of all commercial banks. As such a fall in their stock of advances is indicative of the borrowers behaviour in the period under review. “The majority of private sector borrowers either borrowed less or retired the bank credit faster because they had converted their foreign currency holdings into rupees,” said a senior official at another NCB — referring to the rise of the rupee after 9/11. The rupee appreciated by a little less than 8 per cent against US dollar between September 11, 2001 and September 11, 2002 on the back of dramatically high inflows of foreign exchange into the country. The foreign exchange reserves rose from $3.3 billion at end-September 2001 to $8.25 billion.

Apart from faster credit retirement and low credit offtake by the private sector what else kept the advances of the state-run banks from growing was that they did little credit marketing. “It is partly true,” admits head of credit division of a state-run bank who declines to be named. “The concept of credit marketing has still not taken off in NCBs...We have a long way to go in this direction.”

Local private banks and foreign banks operating here are known for aggressive credit marketing. Young men from these banks can be seen frequenting top business houses to convince businessmen to take loans from their banks. Heads of credit and other senior officials of these banks also keep in constant touch with leading business houses — making all efforts to win new clients and to keep the existing ones from going astray.

Small wonder than that the total advances of 13 local private banks went up by Rs53 billion to Rs196 billion by end-September 2002 from Rs143 billion at end-September 2001. Though this huge buildup in stocks is mainly due to the takeover of Emirates Bank by Union Bank and Societe General Bank by Meezan Bank yet there has been some genuine increase in their advances in a year ending on September 30, 2002.

Officials of private banks say a key reason for higher growth in their advances is that these banks keep their lending-deposit rate spread at lower level than that of the NCBs. Figures bear this out. At end-September 2002 the combined lending-deposit rate spread of local private banks stood at 6.72 per cent against 8.21 per cent of the NCBs.

This spread means a lot to the private sector borrowers as the majority of them not only borrow from their banks but also keep deposits with them.

Naturally the banks offering a low gap between the lending and deposit rates will attract them more. But then the NCBs say they are still over-staffed and carry on a much larger portfolio of bad loans (thanks to government interference) than that of the local private banks.

At end-September 2002 private banks reported non-performing loans (NPLs) of Rs20.15 billion only or 10.3 per cent of their total advances: the NCBs by the same time were burdened with NPLs of Rs109 billion that was 27.2 per cent of their advances. The NPLs are the loans that remain unpaid for 90 days or more.