Challenge before the SBP governor
There has been much speculation about whether Anwar was the most appropriate choice for the job. We have no reason to believe that a man who has nearly 40 years of experience in international banking, as well as working within the operational heart of the State Bank itself, is not up to the task. Whether he is able to resist political pressures and maintain the central bank’s independence remains to be seen, but we believe he deserves a fair chance.
Many have speculated that the most recent cut in interest rates was made under political duress by a man who was eager to please the government. Yet, what many often forget is that the last time Anwar was serving as acting governor, he raised interest rates, suggesting that he is not quite the malleable sort he is being made out to be. The governor’s central challenge now will be to maintain the health of a financial system that has a worrying number of struggling banks, all the while ensuring that businesses get better access to credit. And did we mention that he has to do all of this while keeping a check on inflation?
We wish the governor luck in his new job, but we also have some requests. He could start, for instance, by releasing the central bank’s investigation reports into allegations of financial malfeasance at the state-owned National Bank and the Bank of Punjab. No financial system can possibly hope to maintain the confidence of the public if there are serious question marks over the creditworthiness of two of the 10 largest banks in the country.
We would also hope that the governor is able to curb government borrowing from the central bank itself, an act that does little except spur inflation to ever greater heights.
Published in The Express Tribune, October 30th, 2011.
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@Noor Nabi: I don't think serving in BofA and Merill Lynch discredits Yaseen Anwar in the slightest, these were two of the biggest and most successful Commercial and Investment Banks in the world when he served in them, only falling short in the 2008 financial crisis. Was there any better private sector FI at that time that would have given him a better profile?
Mr. Editor, you are optimistic and that may be good for a while. Anwar should first conduct stress tests on all banks per German model applied to all German FI's. That means all non-accrual loans (interest not paid within last 90 days), loans that are in default but not yet recognized as such, loans that are in recovery proceedings over the last 1, 3, 5, 6+ years, and interest payable on them but not accrued be disclosed. Publish an accurate picture of billions of Rupees in loans written off to all political, bureaucratic, military and judges since 1990s be made available. I say from 1990s because this should bring into the net, loans written off for Sharif's, Chaudhrys, Gilani, Zardaris and thousands of others who have benefited. Then publish the findings as to the extent of additional capital required by the banks to meet Basle 3 conditions when written off loans are charged off through Profit and Loss Statement and how much equity remains. That should be the start to rebuild the financial sector. Now do you think he has the guts to do that?? And Mr. Editor, don't you think that if billions had not been charged off to all state actors and non-state actors, and to state institutions, we would have had sufficient liquidity in the system to enjoy lower inflation and lower interest rates??? Think about this!!!
A big chunk of the new governor's career was with Bank of America and Merrill Lynch, two financial institutions that are notorious for their lack of success and lack of ethical practices. He holds US citizenship and has most of his assets abroad. This new job is a good ride for him although, at this age, it would be unfair to accuse him of building his CV. Has he been appointed to this position because of his knowledge and experience? Or is it that Islamabad considers him to be pliable. Yes, as acting governor before he raised interest rates and was not given the job. This time he lowered rates and clinched the job. Notwithstanding this skepticism it is right to give him a fair chance. The public's desire to see the reports on the alleged malfeasance at the National Bank of Pakistan as well as the Bank of Punjab is the right of the masses. The new governor should be advised - not requested - to release these reports. If he can do that he will be sending a positive signal that will enhance confidence in his ability to do what is right. He should also get rid of the Secretary Finance from the Board of Directors and bring in people who understand macro-economics.