Profit 5th February, 2012 by Profit Epaper

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Corporate debt market in the oﬃng to rid investors of banks: SBP governor Page 03

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Sunday, 05 February, 2012

Growth is unlikely till… news analysis Sakina HuSain

imports almost halt PsM runs on below 20pc capacity awaiting approved bailout package karaCHi

GHULAM ABBAS

he ailing Pakistan Steel Mills (PSM), which is currently running on below 20 per cent production because of short supply of raw material and financial crisis, is also going to lose the material supply from Iran under the US economic sanctions on the neighbouring country. With the meager production level and lack of credit to procure adequate supplies for its operations, the imports have almost been halted while depending only on local supply. The shortage of raw material is further reducing the production level pushing the national institution towards more losses, sources told Profit. PSM, the largest steel company in the country, with the shortage of money, was also unable to import raw material from Iran, owing to reluctance by banks to finance the transaction due to US

sanctions on Tehran. Pakistan would be unable to import raw materials – primarily iron ore from Tehran, the important supplier eve after the financial issues are resolved due to US backed sanctions. The loss of the important supplier, would not only deprive the state-owned Pakistan Steel Mill of the iron ore with less freight charges but it would also increase the cost of production as for the imports of the same material from other countries the government institution has to bear more charges because of distance, they claimed. Presently, in view of the financial constraints, the mill was currently utilising local iron ore and coke from available coke breeze to keep all its production plants safe from any technical losses. however, sources at PSM, while denying that the imports were halted, claimed that 55000MT coal has reached from Australia on January 12 while a consignment of 22000 Mt iron ore

was scheduled to reach the plant this month. But the mill was mostly depending on the local supply which has also started decreasing due to the lack of rules and duty on exports. The locally produced raw material was also being exported due to difference of cost and payment issue, the sources added. “The government should either manage the required bailout package for running the plants at PSM at least 70 to 80 per cent or shut down the whole business as the current 20 per cent production was no way in favor of the mill,” they said adding that the mill could only be profitable if it was run on the maximum capacity. Almost Rs11 billion worth bail out package approved by the government was yet to be sanctioned by the concerned miniseries despite the fact that the current pace of production at PSM was adding the losses. PSM, indebted by at least Rs 49 billion, was, now, hardly making the bare minimum Rs 1.3 billion per month

against the Rs 5 billion worth of production made through running the plants at around 80 per cent capacity. It is worth mentioning here that PSM faced massive losses in fiscal year 2009 of around Rs26 billion, though those were reduced to Rs11 billion during 2010. The company which has remained in the list of profit giving organisation for eight years till 2008 had started facing huge losses because of the change in material prices. The policy of setting annual contracts for its purchases of raw materials, primarily iron ore from its suppliers, was another reason which added the financial woes of the mill as international commodity prices fluctuated wildly during 2008 and 2009. Because the steel mill had often locked in contracts for supplies at higher rates, its production costs often did not match the prices it could command for the finished product. PSM was also allegedly facing the issues of rampant corruption and bribery.

Punjab devastated by energy crisis

FarakH SHaHzad

S the adverse effects of energy crisis have started appearing on the overall business horizons of Pakistan, Punjab seems to be the most severely hit region as compared to Sindh and KPK. Textile industry is on the course of total disaster as production and exports are falling month by month due to persistent gas closure and electricity load shedding in Punjab. In this state of uncertainty and frustration, all fresh investments and new projects in the textile sector have come to a standstill as energy crisis and economic slowdown hurt businesses as well as domestic and export markets. It is pertinent to cite the case of recent International textile exhibition held in Frankfurt, Germany. Around 219 Pakistani companies exhibited their products but the Pakistani exporters were able to get very little business amounting $ 3 millions only as compared to $100 million in the past. The poor performance is being attributed to Pakistani exporter’s inability to meet the last year’s shipment deadlines that lapsed due to delay in production process caused by energy crisis.

Suspension of gas supply for a long period of time, rising cost of production, hyper inflation, high mark up rates, institutional corruption, political instability and economic slowdown have caused the closure of industrial units, rendering thousands of workers jobless. In Faisalabad alone, more than 500 textile units and around 26 flagship companies have closed their business after suffering heavy losses. A number of mega industrial groups have shifted their capital outside Pakistan to open industrial units in countries like Bangladesh and Malaysia. The industry in Punjab has remained totally closed for the last 35 days as the gas authorities had forced indefinite shutdown. This lengthy gas cut off had followed irregular load shedding in earlier months which have resulted in decline of textile exports by 159.5 million dollars in october and 193.9 million dollars in November topping at 225 million dollars in December of last year. The shortfall was visible more prominently in sub sectors. Export of cotton cloth went down by 44.8 million square meters which is down by 26.41 per cent, Knitwear 4.59 million dozens short which is 37.65 per cent, Bed wear 8342 metric ton 32.75 per cent,

Towels 904 metric ton 7.83 per cent and garments 0.19 million dozens which is 6.75 per cent in December. Textile sector is the backbone of the national economy as it has direct contribution to domestic production and foreign exchange earnings. Gas shortages in conjunction with electricity load shedding created immense problems for the industries and negatively impacted the production process as well and export of value added textiles. Textile industry lost 225 million dollars exports in December and likely to lose another 250 million dollars in January. About 600 million dollar shortfall in three consecutive months is a big setback to the national economy and it is apprehended that if the situation remains constant, this shortfall could touch one billion dollar mark in February. Unprecedented energy shortage was the prime reason behind substantial drop in exports. Situation arising out of gas outage would lead to further decline in exports, huge labor layoffs and decrease in the revenue of the Government. It is predicted that negative growth in the textile exports would adversely affect the country’s economic growth. Industry sources say that Govern-

ment must set priorities for uninterrupted gas supply to industries to resolve energy shortage issue. Huge gas reserves have been explored and waiting for execution. The Government, therefore, should execute these projects on priority basis to bridge the rising gap between demand and supply of gas. Billions of dollars investment on machinery is becoming redundant owing to long hours load shedding of electricity and no gas supply. Energy supply and economic growth were interlinked and gas suspension had slowed down the pace of industrial growth in the country. Present trade and industrial conditions in Pakistan are the worst in the history of the country and if timely remedial measures are not taken, the situation will get out of control. The trade bodies like PTEA and APTMA have repeatedly urged the government to speed up its efforts to overcome gas crisis. Pakistan’s exports mostly depend on textile and due to outage of gas supply; country’s export will not grow as targeted and the gap is likely to widen up in the coming months. It is high time that the government wake up and ensure supply of gas to industries to avoid troubles in the production process.

ow that half a year has passed, all realize that the ongoing fiscal year will yield a growth rate of less than 3 per cent. The SBP has been seen faltering as the benchmarks show no signs of improvement, and the pure of the land continue to seek personal survival, in the race of the fittest. If more money is the solution to economy’s woes, why then, one wonders is the unit of sale, short on one hand and abundant on the other. while it has been many a times highlighted that, banks in their aversion towards lending to the private sector, stand on an advances’ stock of about PKR 3tln since FY08, SBP data has enlisted in an increase of PKR 343bln in assets between Jul-Nov’11 in the way of humoring the government’s gluttony. Keeping these grievances aside for a time, if one were to constructively inspect which areas of the economy are hurting, the answer would not fall short of ‘all’. Beginning the analysis from a negative trickle down perspective, although the banking book of this consumer category is small, the default rate or the Non Performing Loans (NPLs) stood at about 18.6 per cent as of Sep-11. Most starkling is that individuals have defaulted on about 20 per cent of the credit card payments amongst other loans such as those obtained for mortgage, where NPLs stand at 28 per cent. Moreover, loans to consumers have declined by PKR 8bln since the beginning of FY12. Moving a step up, the next ‘less significant’ category in the list of advances, is the SME sector where the magnitude of decline is much steeper i.e. PKR 25bln. The NPLs for this segment stand at a much worrisome 35 per cent. Additionally, NPLs of the agriculture sector stand at about 21 per cent although a marginal increase in advances of PKR5bln has been realized during the first quarter. Thus, at the micro-rungs of the economy, some projections of a shrinking demand in addition to the supply deficit characteristic of the ongoing slow growth phase. Bringing into perspective the segment that really matters as the productive vanguard for economic growth, the corporate sector, registered NPLs equivalent to PKR 416bln, much higher than the increase of the banking assets. Specifically, the worst hit in the respective category are textiles with NPLs at 32 per cent, Cement 23 per cent, Automobile Industry 22 per cent, Sugar 14 per cent. The impact of the corporate sector’s inability to service debt can be understood through an often quoted statistic that the textile industry’s contribution to the GDP stands at 8 per cent. As a direct corollary, if the textile sector is unable to return one-third of its loans then its productivity should fall by a similar amountreflecting directly on the growth rate for the current year. Moreover, the production and financial risk of other sectors like cement is based on demand that is derived and determined by the level of construction, which is once again catalyzed by strong growth. By glancing at these numbers, even a layman would be able to tell that over coming the power and gas shortage is the only simple solution for taking the economy forward. Easy calculations reveal that, producing an additional 5000Mw per month from oil-based power plants would cost PKR 2.5bln per month and PKR 30bln for the whole year. Thus, reasons for not immediately incurring this cost seem hideous from any angle one may choose to look through. Simultaneously, one can also breathe sighs of relief that the solution requires the government to spend only a fraction of the losses already being incurred. why is there reluctance then? The writer is an economic researcher and freelance financial journalist

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Sunday, 05 February, 2012

news

Index stays around 12k mark amid purchase reluctance g

g g

Bears prevail as index plunges by 77 points 169 decline, 60 advance, and 75 remain unchanged of total 304 scrips traded Kse-30 index loses 46.06 points to close at 11170.50

karaCHi

STAFF REPORT

RoM the onset of the current week, the benchmark index kissed the 12k level thrice, but was unable to breach it on closing basis. It seems investors are reluctant to buy stocks over and around the 12k level; hence the market was unable crossover that level. The volumes continued to remain healthy in the preceding three days while on Monday and Tuesday the volumes were fairly low. we believe investors must look at the year to date daily average volumes in two segments, firstly the volumes before the relaxation of CGT which was merely 43mn shares and secondly from the day when investors were inform about the possible address by Mr. Sheikh at KSE, the

index ends flat after top stocks restrict movement 117 decline, 98 advance, 115 remain unchanged of total 330 scrips traded Kse-30 index gains 2.44 points to close at 11172.94 levels

average daily volume from that day jumped to 124mn shares, said Bilal Asif at HMFS. The volumes jumped by 2.9x clearly suggest the core issue behind the under performance was CGT. Furthermore investors ignored the political issues completely and started buying valuable stocks which are trading at a sizeable discount to their intrinsic value. The quarterly result season along with annual result season keep the investors interested and excited. The fertilizer twins (FFC &FFBL) announced their results which were well above the analyst expectations. Furthermore bonus announcement by FFC of 50 per cent astounded the investor community. Result of Lucky cement was fairly inline with analyst expectations whereas PoL results fell short in contrast with consensus expectations. ‘we believe the stocks which are likely

CORPORATE CORNER

Consolidation continues as index gains 55 points 131 advance, 100 decline, 80 remain unchanged of total 311 scrips traded Kse-30 index bags 48.79 points to close at 11221.73 levels

to declare the results in the next few weeks are likely to capture the limelight while the companies already announce the result expectations may be impacted by lack of investor interest,’ he added. JSCL remain in the limelight with a gain of 32.3 per cent in the outgoing week along with a 19 per cent share in total volume traded. Furthermore institutional activity remains thin in contrast with the individuals over the past few weeks. This can be considered as a major reason behind the directionless behavior of the market. CGT RelaxaTion: WildesT PaRTy: The year kicked off on a bullish note with a return of 4.65 per cent with average daily volume of 74mn shares. The activity of foreigners was fairly limited while individuals along with companies ruled the market. The visit of the Finance minister along with SECP

index ends flat despite politico-judicial uncertainties 113 advance, 123 decline, 82 remain unchanged of total 318 scrips traded POl prices plays pivotal role in activity

chief and FBR representatives attracted a full house crowd where Mr. Sheikh announced the relaxations in documentation and other measures which boosted the investor sentiment. The punters and brokers were aware of the CGT relaxation, hence the bull dominated the proceeding on Jan 23, 2012 a day before the announcement and the following Monday. From Jan 20, 2012 to Jan 25, 2012 average daily volume was around 183mn shares depicting investor confidence. The relaxation of CGT may have long term implication on the stock market with investors who were unwilling to invest may return towards the market. Hopefully the volume may return after CGT relaxation which may impact the price discovery on the stock and fundamentally valuable stocks may achieve their intrinsic worth.

Bulls lift index to weekhigh volume g 150 advance, 82 decline, 87 remain unchanged of total 319 scrips traded g DGKC, lUCK enjoy strong gains g

Money MaRkeT: Inflation for the month of Jan’12 crawls back-up in double digit to 10.10 per centYoY whilst the YTD average was restricted to 10.76 per cent against 14.26 per cent for the corresponding period last year. Market yield have responded to the low inflation numbers with 6M KIBoR down to 11.83 per cent depicting retrenchment of 20bps since the beginnings of the calendar year. Ease-off in inflation and trend in market yields have ignited the hopes of further DR cut in the upcoming MPS to propel the growth engines. However further DR cut remains contentious with unwavering monetization, depreciation of PKR against greenback and rise in energy product prices to likely cause inflationary pressures to resurface as low base effect pan out.

software, dual sim, 3.2-inch HVGA touch screen, smart sharing via DLNA, 3 megapixel camera, 800 MHz processor and 1500 mAh battery – this is truly a tech-savvy way to say “I love you”. PRESS RELEASE

lG delights with a divine array of ultimate Valentine’s Day gifts for him & her Representatives of Trade Unions Federation felicitate President nBP

kaRaChi: This Valentine’s Day why not dazzle your loved one with a gift that will make his or her life all the more streamline, efficient or glam? Perhaps it’s a new convenience he or she has never had before? or this seasons ‘must-have’ technology, to beautify one’s home theatre room? LG Electronics is at your beckon call with a treasure chest of gifts prescribed especially for your Valentine. Double your chances of impressing on February 14th with LG’s optimus Net Dual Sim; the perfect pairing of two phones in one. Boasting Android 2.3 (Gingerbread)

kaRaChi: NBPs representative delegations under leadership of President of the Federation Mr. Saeed Haider had a detailed meeting with NBP President Qamar Hussain. Delegation included Federation Secretary General Muhammad Zaman Khan, Chairman Anwar Shah, Head office Employee Front’s Acting President Faheem Ahmed Khan and Employees Front Sindh’s President Noor Allah. Representatives of Federation thanked NBP President on brining out historic Pay Package 2012-13 on behalf of employees. Federation expressed deep satisfaction on the financial position of bank and announced bank is on the way to progress and stabilization under leadership of President Qamar Hussain. They also said that the employee of the bank will discharge their duties with utmost devotion and use their abilities for further progress and stabilization of the bank. PRESS RELEASE

BisP, state life insurance Corporation sign contract agreement islaMabad: Benazir Income support Programme (BISP) has formally signed the agree-

shaheez Zamir, Dr sabiha Qadri, samina Kamal, Tabinda lari, Dilshad Mirza, sarah Moeen, Ruby alvi, Farheen Qaiser, Tajjali Zaheer, Ghazala arif, sherin shahzad, sajida saleem and Omaima adil reciting naat and salam at Mehfil-e-Milad organised by the First women Bank ltd. shafqat sultana President FwBl and others are seen in the picture. ment with State Life Corporation to provide health insurance to its registered beneficiary families. The pilot project of health insurance scheme to be launched in Faisalabad District would be extended to beneficiary families all over Pakistan subsequently. Mr. Shahid Aziz Siddiqui, Chairman State Life Corporation and Mr. Sher Khan, Secretary BISP signed the agreement on Friday in the presence of Madame Farzana Raja, Chairperson BISP. while addressing a presses conference on the occasion, Madame Farzana Raja informed the media representatives that a comprehensive working and planning was being done since last one year to present this unique gift to beneficiary families. She said that this is the first ever such endeavor in the history of Pakistan where poor of the country have been provided with this facility. Like all other initiatives of BISP, She added, the health insurance would also be carrying state of the art technology-based systems. PRESS RELEASE

Online bookstore, www.cart786.com attracting attention lahoRe: The online bookstore, www.cart786.com, has been attracting a lot of attention from the visitors at the ongoing International Book Fair at the Lahore Expo Center. Cart786.com offers nationwide delivery along with attractive discounts on thousands of books on a vast variety of subjects. The visitors to the cart786.com kiosk appreciated not only this initiative but also the attractive introductory offers as well. while speaking to the media, the CEo of cart786.com, Mr. Salman Gul said that he took the initiative of starting cart786.com after thoroughly analyzing the rapidly growing global trend of online bookstores. He added that this initiative of his has been widely appreciated by a vast crosssection of the society. PRESS RELEASE

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Sunday, 05 February, 2012

news INTERVIEW: YASIN ANWAR

‘Debt market to relieve investors of banks’ karaCHi JAVED MEHMOOD & ISMAIL DILAWAR

TATE Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP), under the umbrella of the Coordination Committee, are finalising modalities to launch the long-awaited corporate debt market in the country. “I have started with the chairman SECP in a weekly meeting of Coordination Committee where we have been able to work on the launching of the corporate debt market so to develop corporate debt market,” said Governor State Bank of Pakistan Yasin Anwar in an exclusive interview with Profit.

CORPORATE DEBT MARKET You have the ICI, Glaxo and others to tap the market themselves as opposed to going to the banks, which have captive audience. They can charge this KIBoR plus or whatever it is. The investor from corporate sector would be able to go to the market themselves and fund their own portfolios. They don’t need the banks anymore,” the SBP governor said. once it happens, these banks would have to find new products and would go to the SMEs that would automatically generate and increase economic activity thus growth in the country. The banks’ extra liquidity would then be directed to the agriculture and house financing sectors. Further, the country’s legal system and the laws pertaining to financing sector had also got problems. And within next one or two years the corporate debt market and legal process was going to gel into conversion of this areas into more robust lending ensuring the realization of the engine of growth for this country.

INT’L MEDIA’S EXAGGERATION we have a difficult environment as it is in the world media where the media projects us as a nation that is fraught with a terror and law and order crisis, but that’s an exaggeration. we know that the foriegn media is elevating this to a level which is unjustifiable. Life is very normal in Pakistan except some urban centers or the north-western parts of the country that are plagued and pockets of disturbances are there - which is a common phenomenon in many urban cities around the world. So it’s not alien and the business environment has huge potential, the banking sector is very resilient we are not faced with the crisis that is being faced by many other countries around the world. That is because of a sound banking supervision.

WHERE ARE WE HEADING? I can’t share that in the current state of economy in terms of my own perspective it’s an opinion that I have and other people have different opinions keep that in perspective. I see going forward in terms of the dark clouds and the silver linings that we have in these dark clouds also. I am an optimist and see the glass half full, and that’s the only way I feel we should go forward to build bridges and cover up those potholes or those bumps that we see on the road ahead. Now currently we have GDP that was seeing at 3.8 per cent which is considerably better than what it was 2.4 per cent last year. Naturally it is not as high as we would like to see, but we headed in the right direction. And also it is somewhat better in some cases that perhaps some of the other countries in the region. As far as our concerns or the challenges we have, is that we have a current account deficit that is a concern. Its 2 per cent right now currently which is not very healthy. I am not comfortable with it. we had a surprisingly small current account surplus last year that was because of fortunately very good prices of cotton which have picked up our exports but what it has dropped very quickly because the prices of cotton declined much faster than anybody had expected.

BRUSHING ASIDE THE MYSTERY And some people talk about a mystery.

They wonder why the remittances have been going up over last three years. So I said this before and I said this in front of Finance Committee when was asked. If anybody was in international banking and know international money transfer business then this word mystery would never be used as that means it’s not understood. Very simple, in January 2008 there were two exchange companies that were shut down (Zarco and K&K (Khanani and Kalia)) if we assume that the pool of both formal and informal flows of remittances amount to, let’s say hypothetically I am just choosing the number, $20 to $ 25 billion. At that time we had inflows of $ 67 billion so by logic the rest of it would be informal sector right. on January 1, I issued a circular to all the exchange companies and banks that any exchange company that is operating with its counter party in overseas that counter party must be regulated by the local regulatory body or agency like State Bank or its counterpart over there in England, UAE etc. That was a major restriction or condition that we put on. Thirdly, we launched what called the Real Time Gross Settlement (RTGS); a software program that in fact I was asked to set it up as I had an experience of the US payment systems so it is something that I had to get an approval from Islamabad. Deeming the payment business a very important segment of an economy, we launched RTGS that allows us to transfer a $100 from New York to Muzaffarabad in a matter of few minutes to the beneficiary’s account. So the launch if this allowed the smooth flow and efficient transfer which could compete effectively the quick transfer of hawala or the informal trade business. So now the beneficiary’s account gets the money quickly. Fourthly, I instructed my inspectors to elevate their inspection of the exchange companies to make sure that the compliances are being followed.

UNCERTAIN FLOW on uncertainties on CSF and 3G license, I don’t want to say for sure that these will or will not come in on the CSF and others the federal government is optimistic and I have to support that optimism but at the same time one has to be realistic as well. Given the current environment I am a conservative banker so you have to hedge and supposing you do a sensitively analysis you go through the worst case scenario to be prepared so you have to ratchet up another side of the equation to make sure you try and balance that fiscal deficit.

THREE MAJOR CHALLENGES Three major challenges we have, one, is the revenue side that is a key, secondly it’s the balance of payments, and third private sector credit. The fiscal revenue target is Rs 1952 billion, attached to GDP ratio of 9 per cent we need to be somewhere up north of that. our expenditures are still naturally going up with the revenue side needs to go up expediential higher than what it has been. Now if the inflows don’t come in, let’s say hypothetically, by 50 per cent say only $ 400 million come of the $ 800 million from the Coalition Support, we have got payments of the IMF $ 1.2 or $ 1.3 billion has to go out during this second half keep in mind it is not next month, people keep saying its next month it is in second sometime, I believe, in April or May. “But we have already budgeted that in our calculations, so we don’t see an impact of that as far as our forecast is concerned for fiscal deficit and the current account position,”

DOLLAR RESERVES About the country’s depleting foreign exchange reserves the governor said: “Yes, they have come down by $ 1 to $ 2 billion from $ 18 billion to below $ 17 billion, but that have not been moving as negatively as one is assuming.” The reason being the inflows on the remittance side have been “very very good”, he said. “FDI, yes, has gone down! The portfolio investment has gone down partly because of the law and order situation,” he said. But

recent changes that have taken place in the tax laws at Karachi Stock Exchange, the Governor hoped, may be helpful in bringing in some inflows that should also help cushion other possible economic shocks arising from reduced inflows.

FISCAL DEFICIT Fiscal deficit is at the bottom line here which is going to drive at where the government has forecasted about 4.7 per cent, because of these uncertainties; we fell that perhaps the fiscal deficit will be a little higher.

IMF PROGRAMME Appreciative if the IMF stand-by arrangement and the reforms envisaged by it, the governor said the program was “very good” and was devised very carefully and the supportive arguments had been very logical. The only difference, he said, was that set targets were “ambitious”. “And it’s the word I have used and we will support that activity to hopefully restate these ambitious targets… but if they don’t we see a fiscal deficit a little bit higher.”

GOVT BORROWING DOWN To a query over the perception that central bank was printing huge banknotes each day to bridge the fiscal deficit, the governor said, “No! See there is a misconception there. Keep in mind the borrowings have come down by the federal government in the recent years from a high of approximately Rs 800 billion in 2008, it has come down to little under Rs 200 billion for this fiscal year”. The trend has been down now what you referring to has to be clarified when they borrow from the central bank of course its inflationary and we have to print new notes. They have not been borrowing from us as heavily but have been borrowing from the commercial banks.

SBP INJECTS LIQUIDITY Asked about heavy liquidity injections by the state bank the governor explained that the regulator had two functions: price stability and financial stability. “These are two cornerstones of a central bank. Price stability is to manage and fight inflation which is the enemy number one of the poor people,” he said. If you have borrowing from the commercial banks we have been pumping in liquidity why is because otherwise you have dried up liquidity in the banking sector, you must maintain liquidity and the federal government say oh you don’t have to do that why you are doing that?

NOT REAPING DESIRED FRUITS The governor, however, disapproves of the fact that the huge money injections in the banking system were reaping desired fruits for the regulator. “No, it does not in simple terms. It is not healthy. It is worrying,” he said. He however said the private sector credit had grown in the recent months and had not dried up. The banks’ advances, he said, were not going to the productive sector of the economy and were rather going for supporting the working capital and that is not the ingredient that you need to fund the long terms private sector investment that is critical for long-term and sustained economic development. “That is not what we have got here.” The private sector investment is low. You have got to lend

money to the manufacturing sector for long term investment “So private sector credit, yes you are right about it, I am concerned about it and that is constraining our ability to grow for the long term,” Anwar added.

MASSIVE GOVT LENDING Underlining the steps to elevate that, the governor said the SBP did have some instruments in hand that could be implemented. “That’s not to say we would not use that but we do also want to support the government, the ministry of finance. we don’t want to create difficulties for them,” the governor said. “Because if we close the tap over them where would they go to. They would (again) come to the State Bank,” the governor said. The SBP instruments to check the banks’ excessive investment in the government papers include restriction on SLR, sector-wise and per centage-wise restrictions on borrowings etc. Energy crises were also impairing private sector growth in the country, he added.

STRESS TESTING MODEL If we go to the past practices of directed lending which was an anathema to the private sector. There have been major shocks across the world in the banking sector but our banks have been resilient to take those shocks. we have a healthy environment for the banking sector. our “Stress Testing Model” has been so useful that the world Bank asked us to send a team of Pakistani bankers to brief the central bankers in Bangladesh and Nepal on the Stress Testing Model. “The world Bank recommended our team and funded it for the weeks long visit,” he said. Kenya was another country that the governor said had come to Pakistan to see how the banking sector management was being ensure by the SBP.

HIGHER MARK UP RATE About the higher double-digit banks interest rate in the country, he said it depended on the inflation which, despite staging a singledigit (9.7pc) upset in December, was likely to set in between 11 and 12 per cent by the end of June 2012, as targeted by the federal government. As a central banker do you gage inflation by one month? one has to take it over a period of time. The trend is to be seen and we still see inflation somewhat persistent.

IRAN CRISIS The exogenous commodity prices, oil price if there is a crisis in the Strait of Hormuz then obviously there is a spike in the oil prices and then we are subject to that as well so these are external factors due to which one cannot forecast as far as the mark up is concerned. It is tied to

inflation. And the mark up rate in some cases is high because the banks have access to the government papers and they get that attractive rate for sovereign risk with zero risk so if you translate that if they give that credit to the private sector borrower their risk profile automatically jumps up as compared to that sovereign risk paper. So as a banker I would charge that private borrower a higher mark up for a paper that was not made available to a sovereign paper until we get more credit available to the other areas that we should.

ON WRITTEN-OFF BANK LOANS About the write-off loans the governor said the phenomenon was not unique to Pakistan and was taking place around the world in countries like the US, UK, Greece, Europe where the banks were going to collapse. This issue stretches from 1970s to 2009 during this period what happened with nationalized banks and then there are some characters that are not around today. I am not condoning the legality of the issue that has to be decided by the judicial commission.

RESPONSE TO CRITICISM well I would counter that question as ineffectiveness compared to what? It’s a question that I would ask you whether that was effective then? How many bank failures took place in the 90s then how many bank failures took place during last five years? “None in the last five years”. You know the famous names you can figure that out there are some famous names that are still lingering you know that Mehran Bank and others but please I don’t want to present this as a comparison. what I would say in answer to that is, you have to prepare the eras that management of the bank took place in time that was an era of a system of nationalized banking, state bank had a dominant role and it controlled the 85 per cent swing since then to date of private assets and private banking shareholders now. It’s very different market you have a much more open architecture and much more open in terms of the borders as far as global money transfers are concerned. You had $ 200 million (in 90s) in foreign exchange reserves and today we have $ 17 billion our balance sheet is huge compared to what it was then, much smaller operation, now take a look at the comparison, now if you are governor at that time. I think it’s unfair because you are comparing apples and oranges you are comparing an ear of 1990s to 2011-2012 when there a sea-change has taken place and changes are taking place very month in the various markets globally, what is happening in Europe there are some major changes and they even don’t know how to establish the best prudential regulations. “I have a philosophy that one shoe size doesn’t fit all,” so what we should do is to take the best countries that we know are working because this environment is changing also now to add to that someone who is not familiar with this different climate not mentioning the name of anybody, I will defend every governor in the past I am sure during his time it was well managed as each governor has his own set of governance and his own environment that is different from the previous governors’.