Zahid Maqbool, President, Islamabad Chamber of Commerce & Industry (ICCI) has called for reducing the widening banking spread which has increased from 5 percent in September 2008 to 7.4 percent in September 2009 and is impeding the growth of business and economic activities.

He said the widening gap between lending and deposit rates is having a dampening effect on the economic growth & employment as a continuous high spread discourages both investments and savings. He stressed upon the banks sector to change their policies and bring down spread to 3.5 percent to pay a positive rate of return to depositors and thus play a positive role towards the development of the economy.
Zahid Maqbool said though the banks deposits increased to Rs.4.162 trillion in September 2009 showing a growth of 10 per cent as compared than 9.15 per cent a year before but these are still far below than the average growth of 18.5 per cent witnessed between 2002 and 2007. It shows that high banking spread has caused an overall deceleration in deposits’ growth contributing to decline in GDP growth rate as well.

He said another drawback of low returns on deposits is that it is keeping a large chunk of money outside the documented economy showing a savings to GDP ratio of just 14.3 percent in FY09 which is on far lower side as compared to world average. Similarly household savings parked mostly in short to medium-term bank deposits or in NSS, fell from 13.1 per cent of GDP in FY08 to 11.2 per cent in FY09.
ICCI President said that banking sector’s failure to offer reasonable returns on deposits have also led to haphazard investment by people in areas like the stock market, real estate, gold and once again in hard currencies. It has even contributed to capital flight and rising undocumented investment abroad.

He, therefore, said it is high time that government should narrow down the high banking spread and increase returns on deposits to promote savings culture in the country which will enable the government to accelerate the pace of developmental works, invest more in public welfare projects by mobilizing domestic resources, reduce its reliance on foreign debt and enhance lending to the private sector to facilitate fast economic growth.