LAHORE: 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, APAT general secretary Naeem Mir stated and 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 maintained that commercial banks have no interest in consumer banking, which is standing at unreasonable level of around 30 per cent, leading to ever-increasing ratio of non-performing loans.
He called upon the State Bank to reduce its key policy rate to 5 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, he said.
“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.
Criticizing the highest discount rate in the region, APAT general secretary Naeem Mir observed that credit to private sector stood at Rs73.5 billion during the first half of the current fiscal year against Rs193.5 billion in corresponding period of the past fiscal year, depicting a decline of Rs120 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 State bank was expecting significant growth in the credit to private sector, but it could not materialize mainly because of the prevailing energy crisis.
He said that commercial banks have increasingly become a major beneficiary of the federal government’s relentless borrowing from the banking system, which is choking private sector credit off-take.
He say that government paper is the surest bet for banks, which accept money from depositors and lend it to the government at a much higher rate but the depositors do not get better rates of return on their deposits.