High banking spread major hurdle for growth of private sector-ICCI

  • May 31, 2014
Islamabad Chamber of Commerce & Industry has called upon the government to reduce the high banking spread as it is impeding the growth of business activities in the country.
Shaban Khalid, President Islamabad Chamber of Commerce and Industry (ICCI) said that SMEs are the backbone of any economy, but highest banking spread in Pakistan is hampering the growth of private sector, especially the SMEs and government should ensure rationalization of banking spread based on the current market conditions. 
According to a World Bank report, banking spread is more than 6 percent in Pakistan while it was 1.3 percent in Bangladesh, 3 percent in China, 0.9 percent in Japan, 1.8 percent in Malaysia and 4.6 percent in Sri Lanka in 2012.                             
Shaban Khalid said about 60 percent deposits of businessmen are lying in current accounts as they believe in interest free banking, which means such deposits are free of cost to the banks as they have to pay no interest on them. However, banks are investing these and other deposits in risk free government securities & other instruments and earning huge profits. 
He said investment in any country depends on easy credit facility as the low lending rates enable investors to borrow easily for expanding existing business or starting new business. High banking spread also prevents businesses from investing in new plant and technology up-gradation to produce world standards quality products. Thus high interest rates coupled with high markup rates retard the growth of SMEs as it leads to higher cost of capital and reduces investment & business development.
Shaban Khalid said the high banking spread also pushes up the cost of production making our products uncompetitive and hurting exports. He urged that the State Bank of Pakistan must play its role for narrowing down the high interest rate spread, which will produce healthy results for economy as it will encourage savings, promote investment, reduce credit cost, bring down production cost leading to better growth of business activities and availability of cheap products to the end consumers.