KARACHI, Jan 30: Bankers seem to have renewed their belief in the old saying — old is gold. They now realize that in their effort to increase lending they cannot afford to ignore the most vital sectors of the economy i.e. agriculture and large scale manufacturing.
“We plan to lend at least Rs7.5 billion to agriculture sector this year,” says president of state-run Habib Bank. He also says that large-scale industry is still one of the key areas where not only his bank but other banks can also employ liquidity. “Small and medium size industries have shown increased demand for bank loans and that is a potential area and consumer finance demand is also up,” he said while talking to Dawn on Thursday. “But of course these are not the areas where banks can put in huge amount of money,” he admitted when reminded of the fact that very high liquidity levels in the banking system calls for liberal lending to conventional sectors whose intake is much larger. “That is why we are more focussed on agricultural lending and are also making big loans to large scale industries.”
He said his bank had disbursed Rs5.5 billion loan to farmers under Haryali credit scheme and this year “we plan to lend at least Rs7.5 billion.” Mahmood said this agricultural lending was in addition to the bank’s participation in the mandatory farm credit scheme supervised by the SBP. He said his bank was keen on increasing farm loaning profile in agricultural infrastructure building and in corporatized farming. “That is where the business lies,” he said.
He said his bank was making more liberal yet careful loans to the conventional large scale industries because they are capable of absorbing large amounts of funds. “We had never even dreamt of this kind of situation,” he said while referring to very high levels of liquidity in the banking system — thanks to dramatic increase in foreign exchange inflows after 9/11. “Banks are just running around to book loans.” But this does not mean that the banks have unlearned the lessons of prudent banking. “The risk profile of the customer and his balance sheet strength matters a lot,” Mahmood said when reminded of the fact that many borrowers still complain of high lending rates.
“The lending rates have to correspond to the bank’s policy and the borrowers ability to make efficient use of it and repay on time.” He claimed that HBL in the month of January alone had lowered its lending rates by 1-2 per cent for different class of borrowers adding that further rate-cuts would have to be made to keep some borrowers from switching over to other banks — and to win new ones. He estimated that on an average the lending rates of his bank might fall by three percentage points this year as compared to 2002.
“We will finally get to a stage where all this rate cut spurs economic activity,” he said but warned that the process may take one to two years.
Just to gauge how much liquidity has been there in the system HBL’s increased investments in 2002 serves as a good example: the bank’s investments more than doubled to Rs140 billion last year from about Rs60 billion a year ago. But that did not give a big boost to the bank’s advances that remained pegged around Rs165 billion.