KARACHI, April 29: All the banks combined lowered the weighted average lending rate by 1.44 per cent in the first quarter of this fiscal year in response to the easing of the monetary policy that started in July 2001.

The latest State Bank statistics show that lending rate of all the banks combined fell from 13.41 per cent at end-December 2001 to 11.97 per cent at end-March 2002. This brings the total cut the banks made in their lending rates in the first three quarters of this fiscal year to 1.77 per cent: At end-June 2001 the rate stood at 13.74 per cent that came down to 11.97 per cent at end-March 2002.

“Banks have not done enough...the overall rate-cut in the last nine months is insufficient,” says the chairman of All Pakistan Textile Mills Association, Nadim Maqbool. “But what is appreciable is that banks are now lowering the interest rates substantially.”

“(In the past) banks cut the lending rates for some of the clients...mostly blue chips...and not for all,” he said while talking to Dawn by telephone. But he admitted that now the banks particularly those in the public sector are ready to cut lending rates for others as well.

Vice Chairman of Aptma Mushtaq A. Vohra told Dawn many members of the association had received such letters this month mostly from state-run and partly privatized banks. He said the members had been informed through these letters that they would now get finances at 13 per cent instead of 14 per cent.

“Initially banks were reluctant to make cuts in lending rates but now they are willing to lower the rates because they are loaded with surplus money and credit demand is dwindling,” said Vohra.

Vohra is not off the mark. The ongoing economic slump has been one of the major factors behind a sluggish demand for the private sector credit.

That the private sector credit demand has been sluggish can be gauged from the fact that in the first nine months of this fiscal year banks lent only Rs36 billion afresh to the private sector against the full-year target of Rs98 billion.

What is more disturbing is that net credit flow to the private sector plus public sector enterprises stood around Rs33 billion only against the full-year target of Rs106 billion. This clearly shows that overall credit demand has been lower than anticipated.

Top bankers say they made more aggressive cuts in lending rates during last quarter because they found that the credit demand was not picking up at the desired pace. “I would not say the private sector credit demand has been sluggish but I would say it has not been in line with the expectations,” said National Bank president S. Ali Raza when reached by Dawn over telephone.

He said he hoped that the aggressive rate-cut made by the banks during last quarter would show its final impact on credit demand pattern with a lag of time. “This is an ongoing process,” he said when asked whether banks would continue lowering interest rates during this quarter as well. “I think that the demand for private sector credit will pick up after some time,” he said adding that agricultural credit demand had already been up to mark so far this fiscal year. Raza admitted that some of the banks that cut their lending rates in the last quarter had surplus liquidity. But he stressed the point that slashing of lending rates had been going on even before that “on case-to-case basis.”

The SBP statistics show that whereas weighted average lending rate of all the banks combined fell by 1.44 per cent in the last quarter the average lending rate of state-run banks declined by only 85 basis points: it came down from 13.78 percent at end- December 2001 to 12.93 percent at end-March 2002.

This brings their total rate-cut in the first nine months of this fiscal year to only 98 basis points: their weighted average lending fell from 13.91 per cent at end-June 2001 to 12.93 per cent at end-March 2002. The three state-run banks namely National Bank of Pakistan, Habib Bank and United Bank coupled with two partly privatized banks namely Muslim Commercial Bank and Allied Bank claim two thirds of the total credit market share in Pakistan.

The statistics show that two partly privatized banks combined cut their weighted average lending rate by 1.39 per cent in the last quarter: the rate fell from 15.11 per cent at end-December 2001 to 13.72 per cent at end-March 2002. But the total rate-cut they made in the first nine months of this fiscal year comes to only 82 basis points: the rate fell from 14.54 per cent at end- June 2001 to 1.72 per cent at end-March 2002.

The statistics further show that local private banks slashed their lending rates by 1.51 per cent during last quarter: their weighted average lending rate fell from 13.77 per cent at end- December 2001 to 12.26 per cent at end-March 2002. This brings the total rate-cut they made in the first nine months of this fiscal year to 1.71 per cent: the rate declined from 13.97 per cent at end-June 2001 to 12.26 per cent at end-March 2002.

Foreign banks cut their weighted average lending rates by 1.48pc in the last quarter: the rate came down from 11.69pc at end-December 2001 to 10.21 at end-March 2002. In the first nine months of this fiscal year they made a total rate-cut of 2.94pc — the highest among all groups: their weighted average lending rate came down from 13.15pc at end-June 2001 to 10.21pc at end-March 2002.

As the figures show the big five banks (three state-owned and two partly privatized) made a less than one per cent cut in their lending rates in the first three quarters of this fiscal year.

Businessmen say and central bankers agree that the rate-cut is much lower than expected. The SBP cut its discount rate by five percentage points to nine per cent during July 2001-Feb 2002 to help banks make cheaper credit available to the private sector.