KARACHI, Feb 6: Banks on Friday started quoting for the first time KIBOR-related lending rates to corporate customers amidst protest from businessmen against linking KIBOR-based lending to larger financing volumes.

Treasurers of local and foreign banks told Dawn that the banks were willing to lend to their corporate customers at 15-40 basis points above KIBOR or Karachi inter-bank offered rates for up to six months. They said that most banks were willing to entertain all corporate customers seeking finances of Rs30 million or more at KIBOR-based rates.

"But I was told by two banks that they would quote KIBOR-based rates for finances of Rs500 million or more," complained Mirza Ikhtiar Baig. Mr Baig, who heads the banking committee of the Federation of Chambers of Commerce and Industry, refused to name the banks.

"Banks were not supposed to limit KIBOR-related lending to the volume of financing," he said. "Banks had agreed to quote KIBOR- based rates for all corporate lending irrespective of amount."

A businessmen delegation led by Mr Baig had met senior SBP officials including Executive Director Farhat Saeed and Head of Treasury Zafar Shaikh before the Eid holidays wherein the two sides had discussed how KIBOR-based lending would work. "The issue of the lending volume had not featured in our discussion," he recalled.

Mr Baig demanded that the banks should start quoting KIBOR- based rates for all corporate customers as per their definition in the SBP prudential regulations. "This will not work," he said criticizing the practice of limiting KIBOR-based rates to larger volumes of financing.

Senior bankers said since the SBP Prudential Regulations for corporates are silent on the amount of lending to be made to corporate entities the banks have set their own limits for this purpose. These limits vary depending upon the customers profile and the financing products.

But senior bankers said most of them quoted KIBOR-based rates for corporate customers seeking fixed term loans of Rs30 million and above. They said top customers, including textile tycoons and multinationals, made enquiries at banks about KIBOR-based lendings. But it could not be learnt how many of them actually borrowed money from banks at KIBOR-based rates.

"We will learn about actual lendings at KIBOR-based rates when our corporate branches will report their latest position to us," said treasurer of a large local bank. He said the treasuries of all banks normally transmit KIBOR for different tenures to their corporate branches around noon and the rates remain valid for the whole day.

"Today we started telling our boys at these branches that they should lend money at KIBOR plus X basis points...how much they actually lent to the customers will be reported to us in a day or two."

The SBP in consultation with the Pakistan Banks Association has introduced KIBOR as a reference rate for corporate lending to make interest rates more market-driven. Bankers say that treasury bills rates are no longer reflective of the market-based interest rates.

Currently banks quote KIBOR-based rates for up to six months but they have assured the SBP of extending the tenure to one year by end of March and to three years by end of December this year.