—Dawn Illustration

KARACHI: The State Bank could hardly raise Rs28 billion for government on Wednesday through treasury bills which is much below the target of Rs175bn.

Bankers said that the market had been facing severe shortage of liquidity and that was a deliberate attempt by the central bank, signalling banks to stop rush for government papers.

The State Bank has not been pumping enough money to keep the market liquid since banks are facing shortage of over Rs600bn.

The State Bank used to inject Rs500bn or more each week keeping the banks liquid, but still short of liquidity.

Currently banks are short of liquidity by Rs70 to Rs80bn and were unable to invest in government papers.

The State Bank gradually reduced liquidity injections in the last three months which created a gap, forcing banks to avoid lending to government, said a senior money market player in the banking industry.

This change in the SBP’s stance came after five years. Earlier, the Central Bank had been encouraging banks to invest in government papers which loaded the government under huge debt and interest payments which sharply increased by over 60pc in the first quarter of the current fiscal year.

The treasury bills calendar issued by the State Bank showed that earlier it was planned that Rs175bn would be raised on April 17 auction of treasury bills.

The total bids just stood at Rs59bn and most of the bids were meant for three months.

Out of Rs28bn, the government raised Rs27bn for three months. No bids were offered for 12 months.

Bankers said the maturity of t-bills due on Thursday amounted to Rs148bn while the government raised just Rs28bn through auctions.

There is a huge gap between the matured amount and the amount raised by the State Bank, creating further liquidity crunch that may affect the money market.

It was also interesting that banks were anticipating higher interest in the coming months despite low inflation.

“This time the interest rate would not be driven by Consumer Price Index (CPI) or Sensitive Price Index (SPI). We believe the shortage of liquidity would raise demand and that would push the interest rate in the next monetary policy,” said S S Iqbal, a money market expert.

The CPI is well below the policy interest rate of 9.5pc while analysts believe the CPI could see a further fall this month. In March, the CPI was 6.6pc on year-on-year basis.

It seems strange that the interest rate could go up under the falling inflation, but bankers insist they chose to invest in 3 months papers, anticipating that interest rate may see a hike in the next monetary policy.

The State Bank of Pakistan.—File Photo

KARACHI: Pakistan’s central bank said on Friday it was leaving its key policy rate unchanged at 9.5 per cent.

The State Bank of Pakistan said it faced two main challenges in reaching a policy decision: “to manage the balance of payment position and to contain the possible increase in inflation.”

“The balance of payments position continues to be driven by low financial inflows and high debt payments,” said the central bank.

“A cumulative net capital and financial inflow of $34 million during July – February, FY13 is insufficient to finance the external current account deficit of $700 million for the same period.”

The Asian Development Bank, one of Pakistan’s biggest lenders, has said the country faces a serious balance of payments situation and may have to turn to the IMF again to avert a crisis.

The State Bank of Pakistan.—File Photo

KARACHI: The outgoing government raised Rs289 billion through the National Savings Schemes (NSS) during the first eight months of this fiscal year, which was more than what it generated in the entire 2011-12.

The former government used all options to raise liquidity to keep alive its financial affairs, giving boost to the fiscal deficit, the most dangerous sign for an economy, the State Bank noted.

The SBP reported that during the July-February period of 2012-13 the savings schemes attracted a staggering sum of Rs289bn compared to Rs188bn raised in 2011-12.

Economists fear that the fiscal deficit for the current fiscal year could be more than 8 per cent of GDP which ‘will be a serious problem for the next government’.

The fiscal deficit in 2011-12 soared above 8pc inviting serious criticism of economic circles as well as the International Monetary Fund (IMF) which wants the fiscal deficit to be no more than 4pc of GDP.

The government has already borrowed Rs911bn for the budgetary support during the last eight and half month. For the entire FY-12, the government had borrowed Rs1200bn as budgetary support.

The caretaker government has announced to borrow Rs1.3 trillion during the fourth quarter of the current fiscal through treasury bills. This huge amount reflects the government’s increasing reliance on borrowed money.

It is also interesting to note that the tax collection revenue and borrowed amount is running close to each other giving a grim picture of the economy sinking under massive borrowings.

The caretaker government has reportedly asked the finance ministry not to negotiate with the IMF for loans that may create threat for the government struggling to avoid default like situation.

The previous government failed to muster foreign support for its budgetary gaps that also increased the fiscal deficit for the last two years.

The outgoing government did not leave any plan for the finance ministry to carry on its job with a clear vision; instead the borrowing remained only strategy to move ahead.

This rising borrowing would certainly force the State Bank to tighten its monetary policy since inflation could move up. The prevailing single digit inflation is not sustainable for longer periods as the huge liquidity chasing the main inflation to send it up again.

The debt liability has increased so high that the government may not to able to return the entire debt and would prefer to rollover the domestic debts. Most of the domestic debts were accumulated at much higher rates than the prevailing rate. The policy interest for the first time came down to single digit this fiscal while it remained as high as 14 per cent during the last five years.

The Supreme Court of Pakistan.—File Photo.

ISLAMABAD: Recent controversy over the appointment of a deputy governor to the State Bank of Pakistan (SBP) has prompted a citizen to file a petition in the Supreme Court to seek an order for the government to develop a transparent procedure to ensure that only persons possessing knowledge and integrity got important positions at the central bank.

Moved by Advocate Mohammad Aamir Rana on behalf of Aswad Imtiaz, the petition says that the federal government has been appointing persons of its choice as governors and deputy governors of the SBP, without following a just and equitable process.

Apart from the government through its finance secretary and the SBP, Mr Imtiaz has made SBP Governor Yaseen Anwar and Deputy Governors Kazi Abdul Muktadir and Ashraf Mahmood Wathra respondents in his petition. The March 5 appointment of Mr Wathra as deputy governor by the then prime minister, Raja Pervez Ashraf, for a three-year term stirred quite a controversy after the Election Commission of Pakistan (ECP) raised objections and directed the finance ministry to remove him because the ECP considered the appointment a violation of the ban it had imposed on Jan 22 on fresh recruitments.

But the ministry declined to implement the ECP order, saying the appointment had been made in accordance with law and in consultation with the SBP governor after Mr Wathra had met the required criteria.

The petition has urged the court to declare the appointment of the SBP governor and two deputy governors illegal and without lawful authority.

In addition, it said, the finance ministry and the SBP should be directed to produce before the court complete record of the process through which the governor and the deputy governors were appointed.

The petitioner is of the opinion that the prevalent practice allows the finance ministry to select nominations against such posts without any advertisement and the finance secretary, after informally meeting the potential candidates, moves a summary to the prime minister or the president wherein names of the persons to be appointed are suggested along with their ‘unverified’ CVs.

There is no standard procedure in the ministries, even to the extent of preparing the summary or sending the reference to the prime minister and in most cases only one name is suggested against a vacancy, the petition alleged.

Such process does not suffice to meet the ends of justice and there are reasonable apprehensions that it is prone to abuse as incompetent people or people of unsubstantiated credentials can be appointed. The qualification and credentials of the selected persons are not scrutinised by a selection panel, it deplored.

The Rules of Business 1973 of the SBP provide room for undue interference by the minister concerned whose approval is mandatory for sending the summary to the prime minister. Such a process is immune to political capture, thus detrimental to the autonomy of the banking regulator.

All organs of the state are bound to make endeavours for the uplift and benefits of economic growth of people, the petition said, adding it was necessary that the federal government enact rules and procedure for all appointments, especially when choosing a person to head a public institution/regulatory body having consequences on the economic condition of the public at large as their wellbeing is inextricably linked to the performance of such persons.

After the 18th Amendment, it points out, all policymakers relating to regulatory bodies are to be approved by the Council of Common Interests (CCI) in terms of article 154 of the constitution, but the CCI has failed to make any policy about the appointment of the heads and members of regulatory bodies.

The Election Commission of Pakistan.— File Photo

ISLAMABAD: The Election Commission of Pakistan (ECP) has taken notice of the appointment of deputy governor of the State Bank of Pakistan, allegedly in violation of its ban on fresh recruitments, and asked the government to immediately de-notify it.

An ECP letter to the secretary of finance said it had taken notice of the appointment of Ashraf Mahmood Wathra as deputy governor of the SBP “despite a ban on recruitment imposed by the Election Commission of Pakistan vide its notification of January 22, 2013”.

It said the ECP had taken a serious view of the appointment without seeking the ECP’s permission and directed the SBP to explain within 24 hours why its directive had been violated.

“In case the requisite explanation is not received within 24 hours, the said appointment will be reversed,” the ECP said.

The State Bank of Pakistan reported to the ECP that in terms of section 10(4) of the SBP Act, 1956, it was the prerogative of the federal government to appoint deputy governors of the state bank for such period as they might determine.

“The federal government has appointed Mr Ashraf Mahmood Wathra as deputy governor (banking), SBP.”

The central bank also reported that the central board of directors of the bank and the SBP management had no authority, under provisions of the SBP Act, to appoint deputy governors and as such the question about seeking the ECP’s permission for the purpose did not pertain to the State Bank of Pakistan.

As a result, the ECP wrote a letter to the secretary of finance and questioned the appointment of the deputy governor for three years.

The EC asked the secretary of finance to immediately withdraw the notification and “a confirmation report may be furnished within two days for placing it before the Election Commission of Pakistan”.

An ECP official said that the Commission had written a letter to the secretary of finance on March 23 and, being a public holiday, it had not yet received a compliance report until Monday. He said that since Saturday and Sunday happened to be holidays, the ECP would wait for the finance ministry’s compliance report till Tuesday and then take a decision.

The Supreme Court of Pakistan.—File Photo

ISLAMABAD: A commission set up to probe bank loan write-offs from 1971 to 2009 has given a clean chit to politicians and civil or military bureaucrats.

In a report spread over three volumes and 2,200 pages, the commission put the amount of waived loans over the past four decades at Rs87 billion, including Rs84.621bn from 1992 to 2009 and Rs2.3bn from 1971 to 1991.

On Feb 20, the Supreme Court had ordered making public the report prepared by a former SC judge, Syed Jamshed Ali Shah, who headed the three-man commission.The court had initiated a suo motu proceeding on press reports that the central bank quietly allowed commercial banks to write off non-performing loans (NPLs) under a scheme introduced by former president Pervez Musharraf.

Soon after the 2002 elections, finance minister Shaukat Aziz and his financial team approved the scheme and subsequently the State Bank of Pakistan issued a circular.

Instead of launching an effective campaign for the recovery of NPLs, the SBP issued an incentive scheme to banks/DFIs (development finance institutions) in Oct 2002 for waiving loans of the organisations showing a ‘loss’ for three years.In its report, the commission presumed that the SBP circular is a valid piece of subordinate legislation till such time the apex court declared it otherwise.

Politicians restructure loans: The commission said it examined 740 cases, but despite its best efforts the banks and DFIs did not provide information on loans sanctioned or written-off on “other than business considerations”. Either the bankers are afraid of politicians as well as civil and military bureaucracy or are privy to sanctioning of loans or factually the quantum of such loans is not high.

It said of the 740 cases, a comparatively small number was directly related to well-known politicians and civil or military bureaucrats. Although there are some prominent names here and there who availed write-off concessions, the number and quantum is not large enough.

Mainly because, the report justified, written-off loans leave a politician defaulter and can lead to his disqualification under Article 63 of the Constitution, they do avail loans but prefer to have them restructured. Thus the cycle goes on and on.

In case of waiving relating to politician’s friends or supporters, the influential groups did exert pressure on the banks, but there is no direct evidence or it might have been destroyed at the very initial stage.

The report said bankers verbally admitted that influential groups interfered with at the “sanction” stage or write-off stage of the loans in case of NCBs (nationalised commercial banks).The bankers reported informally that shrewd influential persons or businessmen actually do not avail the facility of larger write-offs. They get their loans restructured (without write-offs) and with that arrangement chunks of interest are capitalised and made a part of principal loans and the cycle continues. They, therefore, never become defaulters.

Therefore it is very difficult to separate between politically influenced waiving off or on valid business reasons.

The report said although there is no tangible evidence on the files, it is implied that politically-influenced loans are initiated “top down” through verbal orders. Most of the loans processed bottom up in all probability are genuine or for bona fide business considerations since the culture of favouritism in the banking sector mostly is confined to providing jobs.

Past and closed transaction: It said the bankers, technocrats and the governments are of the considered opinion that the process of loan recovery in Pakistan is very slow. Besides, the chronic loan defaulting concerns can never pay back unless given some concessions to revive them.

The governments/SBP/banks and technocrats strongly believe that the written-off loans may be treated as past and closed transactions and instead of looking backwards, better laws be put in place so that in future the write-off takes place through courts. In this way the banks and regulator will not resort to summary incentive schemes to remove NPLs from their books, the report suggested.

The SBP has already submitted before the apex court that write-off is a normal routine in banks throughout the world and also cited the examples of Bangladesh, India, Malaysia, Indonesia and South Korea.

Independent SBP governor: The commission suggested that the SBP governor should be appointed on the recommendation of a representative parliamentary committee for a fixed and guaranteed tenure as available to the auditor general.

It said the SBP governor should act independently because the central bank enjoys wide and sweeping control over all banking institutions/DFIs in public and private sectors on monetary policy and long-term interests of country’s economy. The commission acknowledged that politicians tend to interfere with the central bank everywhere.It said the single most important reform in the banking sector is efficient and timely recovery of a bad loan because delay in recovery devalues the capital or its cost, pushes up the cost of credit and squeezes the return of shareholders and depositors.

The report suggested upgradation of banking courts since slower speed in deciding cases adversely affected their efficacy. The loans have to be visualised as depositor’s money and unless the recovery is put on fast track, the governments/SBP would be constrained to find shortcuts that sow seeds of favouritism or controversy.

Similarly, the liquidation process would succeed smoothly if the mortgaged property returns to the bank. Therefore it should be provided in the loan agreement that if the borrower fails to pay dues within six months after default and a restructuring arrangement could not be reached the mortgaged property would belong to the bank. Thus, an element of ownership will make it comparatively easier for the bank to sell it and for a prospective buyer to purchase it after a bid, the report said.

The commission suggested that the banks/DFIs badly needed to upgrade their systems, procedures and practices since the malaise of inefficiency, culpable delays and disorganised or missing inventory of record is too glaring. Firm policies and procedures, more training, better monitoring, third-party validation and an improved system of punishments and rewards will be helpful. Besides, the accounting systems be made uniform across the banks/DFIs as well as the protection of loan files and crucial data and its availability as and when required is equally important.

The commission has recommended proceedings for recovery of over Rs324 million from Abbas Engineering (Pvt) Ltd.

Habib Bank Ltd had waived in 2005 the loan due against directors of the company Riaz Laljee, Mrs Nazneen Laljee, M. Suleman Lakhani, Anjum Naseem, Syed Irfan Ahmed Meer and Imran Azim.

The commission recommended proceedings for recovery of over Rs224m from Abbas Steel Industries whose directors include Riaz Laljee, Mrs Nazneen Laljee and Amin Laljee. It also recommended action against the provisional credit committee by the SBP.

Referring to Global Marketing (Pvt) Ltd which got Rs1.07bn waived in 2003, the commission does not consider it a fit case for reopening in view of criminal and civil proceedings involved. The company’s directors include Fauzi Ali Kazmi, Rehana Kazmi, Tariq Omar and Raza Ali Kasmi.

The commission did not proceed against former provincial chief of HBL Younus Habib who waived off Rs2.47bn because the NAB has already settled the case and payments have been made albeit slowly but are to be completed till August 2014.

The commission suggested further proceedings for recovery of Rs1.56bn loan from Mercury Garments and action against the central executive committee of HBL. The company’s directors include Mohammad Asif, Mohammad Razi, Badaruzzaman, Mohammad Sualeh and Jawaad Sultan.

The commission recommended recovery of Rs571.3m from Service Fabrics. Its directors are Farooq Hameed, Mrs Uzma Hameed and Ijaz Hameed.

It recommended recovery of Rs628.6m from First Tawakkal Modaraba. Its directors are Abdul Qadir Tawakkal, Mohammad Rafiq Tawakkal and Ali Hussain Monney.

About Pak Land Cement (Dewan Group), which managed to get Rs1.6bn written off from the NBP, the commission concluded that no principal amount has been written off and very huge concessions have been extended by different banks involved. Yet the principal sum of loans seems vulnerable. It left any further action at the discretion of the Supreme Court.

Pakland Cement’s directors are Tariq Mohsin Siddiqui, Shamim Mushtaq Siddiqui and Mohammad Saleem Arif. The commission recommended further proceedings for recovery of Rs1.4bn from Siraj Steel Limited. Its directors are Chaudhry Mohammad Qasim, Ch Mohammad Azam and Ch Mohammad Akram.

The commission suggested further proceedings for recovery of Rs981m from Quality Steel Works Ltd. Its directors include Maj Gen Farhat Ali Burki, Arif Ali Khan Abbasi, Saeed Khan, Mohammad Ziauddin, Syed Babar Hussain and Mohammad Farooq.

The commission also recommended further proceedings against Ravi Agriculture and Dairy for recovery of Rs509.8m. Its directors are Mohammad Akram, Amjad Mustafa, Kaleem Haider Zaidi and Muzamil Khan Lodhi.

The State Bank of Pakistan.—File Photo

ISLAMABAD: The State Bank of Pakistan (SBP) has imposed a maximum limit on the spread between the buying and selling rates of foreign currencies in open foreign exchange market.

“It has now been decided that the maximum spread allowed between the buying and selling rates of foreign currencies must not exceed twenty-five (25) paisas, at any given time”, a statement of the central bank said.

It added that it is reiterated that notice/display board accurately declaring the prevailing exchange rates applicable for respective currency sale/ purchase/ transfer must be displayed at a prominent place in each branch/CEB/franchise, says FE Circular No.1 issued today to the chief executives of all exchange companies including the ‘B’ category exchange companies.

The SBP has also asked Exchange Companies’ Head Offices to submit daily consolidated report to its Exchange Policy Department as per the prescribed format.

The State Bank of Pakistan.—File Photo

KARACHI: Pakistan’s central bank said on Friday it was leaving its key policy rate unchanged at 9.5 per cent.

Last year, the government cut the interest rate by two percentage points in an effort to boost growth.

But economic pressures are building ahead of elections due in several months. The government is unwilling to cut subsidies but has made little progress in increasing revenue from taxes to fund spending.

“There is a shortfall in revenue collection and subsidies are also mounting pressure on our economy,” said State Bank governor Yaseen Anwar. “Inflation is also increasing.”

In a statement, governor Yaseen Anwar said the decline in the consumer price index had been faster than earlier estimates. – File photo

ISLAMABAD: Pakistan’s central bank cut its key policy rate on Friday by 50 basis points to 9.5 per cent from 10 per cent, it said in a statement.

The bank’s Central Board of Directors said the decision was taken at a meeting on monetary policy following a decline in the inflation rate in recent months. The year-on-year consumer price index stands at 6.9 per cent in November, slowing from October’s 7.66 per cent year-on-year rate.

In a statement, governor Yaseen Anwar said the decline in the consumer price index had been faster than earlier estimates.

Food supplies were more abundant than in the previous two years, he said, although the economy remained troubled by persistent energy shortages and a lack of credit.

“The consistently low level of credit availed by the private sector together with declining foreign investments are the main factors responsible for a stagnant economy,” said Anwar. The International Monetary Fund, though, has projected inflation to return to double digits by next year, which would complicate the task of the central bank as it tries to boost growth ahead of elections next spring.

The IMF expects Pakistan’s gross domestic product to grow 3-3.5 per cent over the next financial year – not enough to provide jobs for the rapidly growing population.

Chronic gas and electricity shortages, violent crime and a Taliban insurgency have all hampered growth and contributed to falling foreign investment.

The State Bank of Pakistan.—File Photo

KARACHI: State Bank of Pakistan on Friday injected Rs 547.25 billion into the market for one week through its reverse repo open market operation in Government of Pakistan Market Treasury Bills and Pakistan Investment Bonds.

The bids offered were of Rs 550.75 billion and the rate of return is 9.01 per cent.