KARACHI, Nov 30: Banks must learn to survive. The time is gone when they were making millions by investing the bulk of surplus money into treasury bills and other government securities. They will have to come up with new ways of employing funds profitably.

This was the message the heads of banks received from Advisor to Prime Minister on Finance Shaukat Aziz who said on Friday that the economic reforms would continue.

At his maiden meeting with heads of banks after joining the elected government the former finance minister said he could foresee tough times ahead for the banks after a 1.5 per cent cut in the SBP discount rate and equal cut in T-bills rate. The meeting was held at the SBP head office and was also attended by the State Bank Governor.

A source close to the meeting said Shaukat Aziz said he knew that both revenues and earnings of the banks would likely take a hit as interest rates are moving downwards. But he advised them to offset its impact by exploring new areas of business. “He was of the view that we should sort of focus more on consumer and agricultural financing,” said a participant of the meeting adding that Aziz also wanted banks to lend more aggressively to small and medium enterprises. He said the advisor to the PM on Finance also identified construction and housing or mortgaging business as yet another potential area of business for the banks. Several participants of the meeting quoted Aziz as saying that since the economic managers are the same the reformist policies of General Pervez Musharraf would continue under the democratic setup as well.

“The minister implied that the banks should not expect a key change in the government policies without saying that Pakistan has promised to IMF to continue economic policies,” said one of the participants. Under the three-year IMF poverty reduction and growth facility that has two more years to expire Islamabad is technically bound to keep the stabilization programme going. Both Shaukat Aziz and Dr. Ishrat Husain who co-steered the troubled economy out of crisis in the last three years have been retained in the new political setup to ensure that the continuity of the reforms. But it is yet to be seen how the new government copes with the problems arising out of the IMF-prescribed stabilization programme that has marred growth and increased the levels of poverty and joblessness.

Seen in this light the advice by Shaukat Aziz to the bankers to focus on consumer and agricultural financing and encourage SMEs and mortgaging business makes a lot of sense. Participants of the meeting said Aziz made it a point that the above-listed sectors had the potential to create job opportunities and give the economy a real boost.

Aziz advised his fellow bankers that exploring new areas of business should come natural to them as the time was gone when they were making money by over-investing in treasury bills and other government papers.

The State Bank slashed its discount rate by 1.5 percentage points to 7.5 per cent on November 16 amidst reports that the government was in favour of the rate-cut a bit earlier.

Sources privy to the Saturday meeting said Aziz again hinted that the present expansionary stance of the monetary policy may continue and advised the banks to catch up with the changing time and make adjustments in their own lending rates.

Bankers told Dawn Aziz did not directly ask them to cut lending rates across-the-board but reiterated his old theory that banks lending rate for the customers should preferably fall to a single digit.

Till the end of October the weighted average lending rate of the banks stood around 12pc. After the discount rate cut by the SBP the banks have started slashing their lending rates for prime borrowers so much so that there are instances where banks have offered finances at a rate equal to the discount rate of the SBP.

But the emphasis put on a single digit scenario by Shaukat Aziz means the banks need to make sufficient cut in their lending rates for the majority of the borrowers.

Some participants said Aziz was appreciative of the fact some banks entering into mutual funds industry and he said more banks should follow suit as this is one sure way for attracting small investors. They said Aziz also made it clear that the new government would continue the privatization policy of the banks. He also advised the bankers to consider mergers of banks for survival.