ISLAMABAD: The overall performance of the banking sector in the country with particular reference to the lack of lending to private sector and small and medium sized enterprises discussed in today’s (Monday’s) session of the Upper House of the Parliament.
After independence from British Raj in 1947, and the emergence of Pakistan as a country in the globe, the scope of banking in Pakistan has been increasing and expanding continuously. Presently, Only 7% of the population uses the banks, has tremendous potential, but this needs to be pushed a little further.
A well placed source at Finance Ministry told this scribe here on Saturday that Ministry had received Order of the Day for today’s Senate session, which carries a motion to be moved by an active member of the Senate Standing Committee on Finance and Revenue Osman Saifullah Khan.
When contacted Osman Saifullah told this scribe that he had submitted a motion regarding the overall performance of banking sector in the country at the Senate Secretariat and luckily his motion had been placed at the agenda for Monday’s session.
He said that he would raise the issue related to bleak performance of the banking sector in playing due role in boosting national economy. According to him banks had reduced lending to private sector and small and medium sized enterprises.
In November last year, the State Bank of Pakistan, expressing satisfaction over the performance of banking sector observed that substantial improvement had been observed in the banking sector during July-September quarter of 2014. The profit (before tax) reached historically high level of Rs 176 billion as of end September, 2014 showing 44 percent increase over the end September, 2013. Similarly, the return on assets (ROA) and return on equity (ROE) inched up to 1.4 percent and 15.9 percent respectively up from 1.1 percent and 12.3 percent a year earlier.
However, according to Omsan Saifullah, high collateral requirements, and financial illiteracy really put finance out of reach for smaller enterprises and women weak financial intermediation. It has happened in a context where credit to the private sector has shrunk as risk-averse commercial (scheduled) banks have turned to purchasing government bonds at attractive short-term rates to finance high fiscal deficits
Moreover, lending rates are relatively high due to commercial banks’ strong preference for holding government securities over riskier corporate debt or personal lending and a lack of other borrowing alternatives, such as a well-developed capital market
According to him it is fact that Pakistan has the lowest private sector credit to GDP ratio and the lowest financial depth ratio (M2/GDP) among leading emerging economies. Only about 14% of the population uses financial products or services, including savings, credit, insurance, payments, and remittance services.
He further observed that he would also highlight failure of banking sector in execution national obligations of meeting out equal treatments towards residents of all provinces of the country. Moreover, banks are also found exporting capital collected from small provinces to major provinces, which has resulted in sense of deprivation in smaller provinces.
He commented that in his speech he would urge the government and Finance Ministry to ask Banks to perform duties as per constitution to ensure equal economic growth in the country.
It is pertinent to note here thatQuaid-i-Azam Muhammad Ali Jinnah took actions to establish a central bank in Pakistan which resulted in the new founding of the State bank of Pakistan, with its headquarters to be based in Karachi.
