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Bank chiefs to discuss loan waiver tomorrow

supreme court pakistanISLAMABAD: State Bank Governor Shahid H. Kardar said on Saturday that heads of all banks would meet in Karachi on Monday to discuss the matter of loan write-offs in accordance with a directive of the Supreme Court.

The apex court had on Wednesday asked the SBP to direct all banks to serve notices to major borrowers who had got their loans written off. The central bank informed the apex court that a number of top business ventures had quietly managed to get over Rs47 billion of loans written off, on a stand alone basis, by commercial banks between 1996 and 2008.

A three-judge bench, headed by Chief Justice Iftikhar Mohammad Chaudhry, had taken notice of press reports that the central bank had quietly allowed commercial banks to write off loans totalling Rs54 billion under a scheme introduced by former president Pervez Musharraf.

Mr Kardar told reporters after attending the Zahid Hussain Memorial Lecture Series that decisions to write off or reschedule loans had been taken by the banks themselves and these had nothing to do with the SBP.

He said that most of these cases related to bad loans prior to 2002 and banks cleared pending loans from their books after all due procedures for their recovery had failed.

“The defaulters move courts and it takes a court more than 16 years to reach a decision. And soon after the decision the party goes into appeal,” he said, adding: “A number of times governments directed to write off agriculture credits in the wake of floods and draught. Industries are in crises after the global recession.”

In reply to questions about the country’s economic woes, the SBP chief said delayed payment from the US Coalition Support Fund (CSF) was the main reason for the high inflation, which in turn discouraged the central bank from lowering interest rates.

He said the pending amount of CSF had reached $2.5 billion. While expenses were being incurred in the war against terror, payments and reimbursements were being delayed, he added.

“In order to meet this shortfall, the government is forced to borrow from the State Bank, which currently stands at Rs185 billion, but it is rising as inflows are low. “This amount cannot be generated from tax collections and the only mode to meet the shortfall is through borrowings,” he said.

“This high borrowing is resulting in inflationary impact on the economy and interest rates cannot be lowered under the circumstances.”

The SBP governor also acknowledged that the private sector was suffering because of high interest rates. The cost of borrowing has increased and uneven dollar inflows are causing an erratic movement in the value of rupee.

He also said that the banking spread in Pakistan was not at the highest level in global scenario. “Internationally speaking, we are at the mid level, but to compare the banking spread we also have to look at the inflation,” he added.

Speaking at the lecture series, Professor Kent Matthews of UKs Cardiff University said the banking sector in the emerging economies was facing stronger competition because of globalisation in the financial system.

He said that foreign banks were most efficient in Pakistan while public sector banks and Islamic banks had high cost inefficiency because of deeper penetration in the system and large network of branches even in remote areas.

“There is a need to improve management and increase motivation levels to reduce cost and increase profits in the banking sector,” he added.

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