KARACHI, June 18: The market-driven floating interest rates have brought windfall for big corporations and the government at the cost of depositors with other borrowers deprived of similar benefits, business executives complained here on Wednesday.
The lending rates of commercial banks vary with a very wide spread from borrower to borrower and it was not justified, observed a leading textile exporter and a former chairman of the Export Promotion Bureau (EPB).
Yet another businessman lamented that the deposit rates were very low and returns were also computed in a manner that worked to the disadvantage of the depositors.
The business executives were giving their observations in a question and answer session that followed a talk by HBL President Zakir Mahmood on “Habib Bank’s Restructuring Story,” organized by President of the 21st Century Business Club Syed S. Haider at a local hotel.
A participant told Dawn that official figures for March 2003 show that the average weighted real bank deposit rate was minus 0.6 per cent. It was in the negative territory after adjustment of the inflation rate. It is depositors who provide funds to the banks to serve as a lifeline. They get a raw deal.
For big corporates providing substantial business to the banks and with strong leverage, the lending rates have ranged between 2.5-4 per cent. There is no linkage between inflation and interest rate to the advantage of big borrowers.
For small and medium sized industries, the borrowing rate ranges between 12-14 per cent or even more.
And the rate of interest on credit cards is 3 per cent per annum. The banks are fleecing the clients, said a business executive.
The T-bills yield 1.5.-2 per cent against 16-17 per cent just over three years ago. The government borrows cheap. It has helped the government to retire expensive T-bills.
Of course, the banks made big profits in 2002. The return on equity for leading foreign and local banks was 16-17 per cent. Much to the satisfaction and benefit of HBL’s shareholders, it was 17 per cent for the bank, the best performance in last five years.
Responding to these questions Zakir Mahmood said the interest rates were market-driven and commercial banks were not responsible for it. Commercial banks were operating like any other business. The interest rates vary according to risk perception about the clients. The most efficient users are likely to get funds cheaper. The small businessmen were smart people who were also taking advantage of the situation and threaten to switch over banks in a competitive market if rates are not reduced.
The HBL president said that interest on credit cards were high because the high cost of running this product. He said in United States the Fed rate was 1.25 per cent but credit card carried an interest rate of 20 per cent.
According to Economic Survey 2002-2003, the difference between deposit and lending rates was 5.5 per cent, the same as in June 1995.