Central Bank to reduce banking spread to generate economic activity: Mahfooz Elahi

Banking and Finance

Islamabad: Banking sector should take necessary measures to strengthen the industrial sector which could stimulate multiplier effects for the growth of trade and industry in the country.

Banking spread has remained very high in Pakistan due to high mark-up rate which was hampering industrial growth while ensuring huge profits for the banks, Mahfooz Elahi, President Islamabad Chamber of Commerce & Industry (ICCI) made these remarks, addressing the business community at the Chamber.

Considering the current economic slowdown, the SBP should make a deep cut in the discount rate to provide relief to industry that was facing various problems mainly increase in cost of doing business, he added.

ICCI President cited the example of United States and India, where banking spread was only 3.3 percent and 4.6 percent respectively while overall banking spread stood at 7.6 percent in Pakistan as compared to 7.25 percent recorded in 2010. He was of the view that high banking spread would encourage the small depositors to spend their savings instead of depositing the same for future returns.

He said that the government had declared year 2010 as the Year of Industrial Revival but no relief was provided to ailing industry. He urged the central bank to reduce the banking spread which was a prerequisite to accelerate economic activity.

He said that banks should provide soft credits to SMEs and domestic industrial units and initiate special schemes instead of focusing on consumer financing which would only burden the economy and society by creating negative saving-investment. SPB should take measures to stop this trend and come up with concrete policies to support SMEs and industries rather than letting the banks to focus on consumer financing, he added.

Mahfooz Elahi said that the domestic industrial sector was on the decline due to many interconnected reasons mainly high rate of mark-up. He emphasized that SBP should prepare a bailout package to support industrial sector and small scale enterprises to survive.

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