Saturday, June 20, 2009
KARACHI: State Bank Governor Salim Raza has said that only 0.5 per cent big borrowers are enjoying 72 per cent of banks’ loans, a situation that is highly risky for banks.
Delivering a keynote address at a prize distribution ceremony of the Institute of Bankers Pakistan (IBP) here on Thursday, he cautioned that banks’ loan portfolio was highly skewed towards big-size loans.
He said only 0.5 per cent of total bank borrowers with loan size of more than Rs10 million were using 71.7 per cent of banks’ loan portfolio.
‘This indicates high concentration of risk in the banking sector,’ he said, adding that sensitivity analysis of concentration risk in the sector suggests that the default of the three largest fund-based exposures can cause the aggregate Capital Adequacy Ratio (CAR) to fall below the minimum requirements.
He said the Non-Performing Loans (NPLs) of banks were expected to stabilise with the improvement in macroeconomic fundamentals. The recent macroeconomic pressures, which eventually led to a slowdown in economic growth in FY09, indicate that the increase in NPLs of the banking system is largely of a cyclical nature.
The governor also expressed his concern over the slow economic growth and its implications.
‘Pakistan is currently standing at a juncture where long-term investment in infrastructure is crucially needed to facilitate the process of economic growth,’ he said.
He said the banking sector, which enjoys virtual monopoly in providing financing to all sectors of the economy, can play a contributing role in the development of the debt market.
He said the State Bank was committed to develop and diversify the financial sector in order to enhance its role in supporting the country’s economic growth.
He said the central bank had a crucial role in promoting secondary market trading of debt securities by improving the effectiveness of monetary policy implementation.
He was firm that now the economy was poised for a remarkable turnaround, while the banking sector had a greater role to play in supporting the real sector by meeting its financing needs.
Mr Raza emphasised that banks needed to make concerted efforts to ensure a sustained deposit growth by tapping the un-banked market, increasing financial penetration and facilitating the process of financial intermediation. ‘The sensitivity analysis undertaken at SBP suggests that the banking sector is well placed to withstand credit risk shocks of a modest nature,’ he concluded.
(Dawn)
KARACHI: State Bank Governor Salim Raza has said that only 0.5 per cent big borrowers are enjoying 72 per cent of banks’ loans, a situation that is highly risky for banks.
Delivering a keynote address at a prize distribution ceremony of the Institute of Bankers Pakistan (IBP) here on Thursday, he cautioned that banks’ loan portfolio was highly skewed towards big-size loans.
He said only 0.5 per cent of total bank borrowers with loan size of more than Rs10 million were using 71.7 per cent of banks’ loan portfolio.
‘This indicates high concentration of risk in the banking sector,’ he said, adding that sensitivity analysis of concentration risk in the sector suggests that the default of the three largest fund-based exposures can cause the aggregate Capital Adequacy Ratio (CAR) to fall below the minimum requirements.
He said the Non-Performing Loans (NPLs) of banks were expected to stabilise with the improvement in macroeconomic fundamentals. The recent macroeconomic pressures, which eventually led to a slowdown in economic growth in FY09, indicate that the increase in NPLs of the banking system is largely of a cyclical nature.
The governor also expressed his concern over the slow economic growth and its implications.
‘Pakistan is currently standing at a juncture where long-term investment in infrastructure is crucially needed to facilitate the process of economic growth,’ he said.
He said the banking sector, which enjoys virtual monopoly in providing financing to all sectors of the economy, can play a contributing role in the development of the debt market.
He said the State Bank was committed to develop and diversify the financial sector in order to enhance its role in supporting the country’s economic growth.
He said the central bank had a crucial role in promoting secondary market trading of debt securities by improving the effectiveness of monetary policy implementation.
He was firm that now the economy was poised for a remarkable turnaround, while the banking sector had a greater role to play in supporting the real sector by meeting its financing needs.
Mr Raza emphasised that banks needed to make concerted efforts to ensure a sustained deposit growth by tapping the un-banked market, increasing financial penetration and facilitating the process of financial intermediation. ‘The sensitivity analysis undertaken at SBP suggests that the banking sector is well placed to withstand credit risk shocks of a modest nature,’ he concluded.
(Dawn)
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