Facing the squeeze : Bank borrowing falls in Khyber-Pakhtunkhwa

Commercial banks in Khyber-Pakhtunkhwa are also reluctant to extend financing to exporters on the pretext that the situation in the province is fluid due to the highly volatile security scenario. During the course of a meeting of the Provincial Sector Credit Advisory Committee (PSCAC), the central bank had given the assurance that proper monitoring was being made to review the position of export refinances to ensure that genuine exporters are properly entertained by the commercial banks but so far no improvement has been seen in loan disbursement.

The borrowing ratio in the province, which was around 11 per cent has dropped to a mere three per cent. This is despite the fact that the ratio of unpaid loans in the province is a fraction of the figure for other provinces. The SBP needs to check this tendency to not give out loans which is likely to further dampen the industrial activities in K-P.

During 1995-96 the lending ratio of commercial bank was very high primarily because there were all-powerful provincial chiefs/ MEB offices in the provinces which were independent and speedily processing industrial and business proposals. Now the situation is different as power is concentrated in the banks’ head offices which inordinately delays the lending process.


The State Bank’s regional offices do not have details of deposit/lending ratio of commercial banks. This writer tried but failed to obtain bank-wise exposure/deposits position in Khyber-Pakhtunkhwa. The regional office claimed that the figures are maintained at the head office while the latter despite repeated requests did not provide the data. In the absence of such information the share of Khyber-Pakhtunkhwa in overall growth/decline in the private sector credit cannot be determined.

The central bank reviews the overall private sector growth/decline position quarterly at Karachi. The review is made on all-Pakistan basis hence, the regional level performance of the banks cannot be judged. At the end of every meeting the SBP shows growth in the credit expansion primarily because the industrialised parts of the country like Lahore, Karachi, Gujranwala and Sialkot get the lion’s share of private sector credit at the expense of the less-developed areas.

The State Bank should put in place a mechanism that could ensure province-wise review of private sector credit in a bid to frustrate region-specific concentration if any. This mechanism would ensure economic development of underdeveloped and backward provinces evenly with the developed parts of the country.

The business community of K-P indicated that the regional offices of the banks should be made independent and powerful to decide on the proposals. They said that the regional offices shouldn’t be merely post offices and bank presidents should visit the provinces periodically to get briefed on the difficulties and requirements of their clients. The presidents of commercial banks seldom visit Khyber-Pakhtunkhwa which also affects the performance of regional offices, they said.

They were of the view that specialised institutions like the IDBP, PICIC and NDFC had been instrumental in the industrial uplift of the smaller provinces. These institutions played tremendous role in the domain of research and development and economic wellbeing of the underdeveloped areas. They had independent regional offices which had power to sanction industrial and business loans throughout the provinces. Their lending ratio in the backward areas was one of the highest with the result that they helped in rapid industrialization of Khyber-Pakhtunkhwa.

These specialised institutions need to be revived to do away with liquidity problem being faced by the industrial and trade circles of Khyber-Pakhtunkhwa and to help revive the dormant industrial activities in the province.

Published in The Express Tribune, April 11^th,  2011.