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Karachi Editors Club meeting on banking issues and economy

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On 26th April 2018 executive committee of Karachi Editors Club met in Beach Luxury Hotel Karachi.
It was unanimously decided to hold symposium on May 3rd 2018 i.e. “Press Freedom Day” on the subject of “Azzadie Sahafat aur iskey Taqazai” at Sindh Boys Scouts Auditorium Karachi

Shaukat Mehmood Executive Vice President of NBP who was the Chief Guest of the meeting also briefed the members about role of NBP and banking sector in economy.
Shaukat Mehmood, was asked five main questions and he was kind enough to give his views on them.
1. Since NBP also serves pensioners hence how it keeps its vigilance on their transparency?
2. Whether NBP serves its customers without any break?
3. At what cost it extends loans to small businesses?
4. How much loan it extends to the different sectors in Pakistan?
5. What is NBP point of view on current PKR depreciation and role of money changers in it?
On first and second question he confirmed that NBP is taking steps to make the system transparent and its every branch is giving maximum service to its customers with minimizing chances of corruption through intense vigilance.
Regarding small loans at low cost he briefed that they are offered to All Men/Women holding CNIC, aged between 21 and 45 years with entrepreneurial potential with One Guarantor. 50% of loans go to women borrowers. Debt-Equity ratio is at 90:10. The borrowers’ contribution of equity would be in the form of cash or immovable property and will be required after approval of the loan. Pricing would be 8% fixed for borrower. Government will pay the difference of the cost of KIBOR + 500 bps. (Our one friend in his column termed the loans at 6% which is wrong) In the first instance, National Bank of Pakistan (NBP) and First Women Bank Limited (FWBL) under the guidance and supervision of State Bank of Pakistan (SBP) would ensure participation of private banks: Private Banks will be required to participate in this scheme on the basis of soundness of business proposals. In case of Baluchistan, at least one branch of NBP will be designated per Division. All non-designated branches will also provide and receive filled application forms and dispatch them to the nearest branches.
Now coming to advances he briefed that currently whole banking sector holds deposits of Rs11933267 million against advances of Rs 6628831 million This comes out in form of AD ratio as 55.5% wherea NBP holding deposits of Rs1, 740,337,879 thousand has extended advances as Rs719, 496, 782 thus giving AD ratio as 41.34%, hence NBP is trying its best to raise its AD ratio (Mr. Shaukat did not mention about figures but his point of view was in accordance with figures).
On PKR depreciation he told that the government of Pakistan has always tried to keep the exchange rate stable. However there are certain costs associated with the stability of exchange rate. The hypersensitivity to maintain a stable exchange rate has already affected the performance of merchandise exports in the last couple of years. The hypersensitivity can be judged through defying the foreign exchange market on a number of occasions.
Recently, the exchange rate depreciated in open market, but it again recovered through an intervention from the State Bank of Pakistan (SBP).
Although the central bank can intervene in the foreign exchange market to tame volatility, but this intervention has to be carefully crafted. This stability has made the Pakistan rupee overvalued, since most of the developing economies have already lowered their exchange rate to remain competitive in the global economy. In addition, the overvaluation has made imports cheaper and exports dearer, which creates pressure on the external account.
The rupee has been stabilized through dollar denominated borrowing. Apart from borrowing from multilateral institutions and bilateral sources, the government has borrowed $7.0 billion till now.
If import cover of official foreign exchange reserves drops below three months, the economy becomes susceptible to Balance of Payment crisis, which has happened on various occasions in the past.
The deterioration of external account increases the chances of speculative attack on currency. People start to hoard dollars as they intend to maintain the store of value of their money. The confidence of the people shakes and the restoration of confidence demands time-therapy.
In a nutshell, the political governments try to manage their economies according to the election cycle since they are fearful of the accountability of the people in the upcoming elections.
Government manages the economy on a short-term basis. Therefore, they normally don’t take long-term goals into account. Last but not the least, this short-term stability of exchange rate has long run repercussions on the capital developing of an economy.
Since FX market was brought to free float in year 2000 hence to manage FX Market in addition to Banks, SBP stated allowing any person to deal in foreign exchange with A class money Changers having many offices and B class Money Changers having one office. They were allowed to sell and buy FX to certain extent of ceiling. They have to surrender excess amount to the banking sector at the end of the day but they normally do not do it. Besides the provision of mini exchange companies, the exchange companies in category A have also been allowed to extend franchise to smaller dealers to carry on exchange business on behalf of companies in category A.
This facilitates them to accommodate smaller business into the exchange business besides bringing them into a national network of exchange business in Pakistan. These ‘A’ category companies has also been allowed to install their booths at strategic points such as five start hotels, airports and ports to cater to the exchange requirements.
The exchange business in Pakistan has taken a quantum jump due to various reasons including a sense of insecurity prevailed after the events of 9/11 and the non-resident Pakistanis instead of keeping their money abroad preferred to send it back to their homes.
Currently with a difference of 200 to 300 bp in buying and selling of Money Changers and interbank market it is more likely that money Changers are doing their business on speculation by manipulating market sentiments. On formation of Money Changers it was in the mind of SBP to get away with money Changers step by step and to hand over the whole business to the banks but now money Changers have emerged as a mafia and nobody can stop them doing their business quite easily. Meeting ended with a vote of thanks from Manzar Naqvi, Mubasher Mir and Mukhtar Aqil.