SBP admits govt borrowings increased sharply

LAHORE- Governor State Bank of Pakistan (SBP) on Tuesday admitted that the government borrowing from the central bank has increased to a considerable extent while the growth of finance facility to private sector has declined, obviously due to interest rate, almost highest in the world.
"The government borrowing has increased sharply while the growth in loans to private sector has declined," Syed Salim Raza told reporters after the launching of a pilot programme for training and development of SMEs in Pakistan here at the LCCI on Tuesday.
It is important to mention here that the International Monetary Fund (IMF) had asked Pakistani government to cut down borrowing from the central bank last year.
"Our banking sector is very strong and the global economic recession will not affect Pakistan's banking sector because our banks neither invested abroad nor borrowed from foreign countries,"
The banks have above Rs 400 billions liquidity and the non-performing loans are below than three per cent, Raza said.
When asked that the banks are discouraging the opening of BBA accounts, he said that he did not know about this. "I will definitely look into this matter and will ensure strict action against the banks if found involved in this practice," Syed Salim Raza added.
He also disclosed that the growth in home remittances was probably due to the global economic meltdown as Pakistanis were left with no other option to wind-up their business abroad and return to Pakistan. The global financial crunch may affect home remittances in future, he maintained.
When asked whether the SBP had any plan to reduce interest rate in near future, the Governor did not respond to the query.
Earlier, addressing the launching of a pilot programme for training and development of SMEs in Pakistan at the LCCI, SBP Governor said the central bank has taken a number of initiatives for the promotion of SME financing in the country.
Raza stressed the need for enhancing the access of credit to small and medium enterprises, especially the small entities. He urged upon commercial banks to increase financing to SMEs, especially small entities, enabling the SME sector to play its due and critical role in the economic development of the country.
"If SMEs are broadly bifurcated into 'M' and 'S' categories, we find that entities under 'M' have had easy access to finance as compared to those under 'S'," he said and added the synopsis of SME finance also reflects that out of total SME portfolio of Rs 383 billion, only 38.3 per cent is being channeled to entities having less than 20 employees.
"This depicts that the focus of financial institutions has been on medium entities," he said and added the primary reason for this skewed distribution was the unorganised way of doing business by small entities.
Referring to major hurdles in the way of development of SMEs in Pakistan, he said that major issues faced by SMEs are lack of skilled labour, outdated technology, weak governance, lack of management hierarchy, absence of book keeping, taxation issues coupled with limited access to formal sources of finance.
He said the SBP has allowed commercial banks to lend up to Rs 3m to SMEs without collaterals and is encouraging them not only to introduce cash-flow based methodologies instead of relying on the tradition collateral based lending but also to come up with innovative products and cost effective delivery channels to increase outreach for small enterprises.
He said the State Bank is also working for capacity building of banks through launch of SME Finance Grass Root Cluster Training Programme for credit officers based in SME clusters that include Lahore, Sialkot, Gujranwala, Rawalpindi, Peshawar, Quetta and Karachi. Similarly, the central bank is also working on devising a Credit Guarantee Fund for small and rural enterprises with the help of DFID, UK.
Highlighting the importance of SMEs, he said globally SMEs have helped to achieve diversified economic growth, employment generation, reduced income inequalities and poverty alleviation in developed and the emerging economies like USA, Japan, Malaysia, Thailand and South Korea. He said that focus on SMEs could help achieve the Millennium Development Goals of the UNO like ending poverty and hunger, universal education and gender equality in developing countries like Pakistan.
He said that this pilot programme is indeed a landmark attempt to develop the capacities of smaller entities. It would be helpful in developing innovative products such as hybrid financing models combining consumer and micro finance models, Raza said and added hopefully it would also encourage other banks to focus on this area.