Single digit policy rate could not enhance private sector credit

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The single digit policy rate could not enhance the private sector credit, as it has registered a decline of about 62 percent despite a decline in interest rates by 4.5 percent during the period of one and a half year.

Banks are not passing on the benefit of cut in policy rates to the borrowers, All Pakistan Anjuman-e-Tajiran General Secretary Naeem Mir in a statement on Tuesday asked lenders to undertake reforms and bring down their operation costs.

Reduction in policy rates, he said, would not serve any purpose unless the banks brought down their spreads and passed on the benefits to borrowers. He said that commercial banks had no interest in consumer banking, which was standing at unreasonable level of around 30 percent, leading to ever-increasing ratio of non-performing loans.

He called upon the State Bank to reduce its key policy rate to five percent, besides forcing commercial banks to fix at least 20 percent share of consumer banking in their total credit. He said the interest rates were being brought down around the world to stimulate growth, but Pakistan was moving in opposite direction. "In the last two years the interest rates in Europe and the United States had been brought down close to zero to save their economies from collapse," he pleaded.

Criticising the highest discount rate in the region, the APAT General Secretary said that credit to private sector stood at Rs 73.5 billion during the first half of the current fiscal year against Rs 193.5 billion in corresponding period of the past fiscal year, depicting a decline of Rs 120 billion.

State Bank of Pakistan has been easing up its tight monetary policy since FY12, slashing discount rate by 250 bps from 12 percent to 9.5 percent to encourage commercial banks to disburse more funds to the private sector with a view to expand their businesses for new employment opportunities and overall GDP growth. After this cut, the SBP was expecting significant growth in the credit to the private sector, but it could not materialise mainly because of the prevailing energy crisis.

He said commercial banks had increasingly became a major beneficiary of the federal government's relentless borrowing from the banking system, which was choking private sector credit off-take. He said the government paper was the surest bet for banks, which accepted money from depositors and lent it to the government at a much higher rate but the depositors did not get better rates of return on their deposits.

Courtesy: Business Recorder

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