
Banks traditionally have been content to live off the return on government treasuries and on their spreads. The SBP, left with no choice, started on a steady programme of reducing returns on government treasuries and finally resorted to the killing blow — setting an upper limit on banking spreads.
The impact seems to already be visible. New loans to the manufacturing sector topped Rs136 billion during the first eight months of the fiscal year ending June 30, 2013, up 61 per cent compared with the same period in the previous year. This is a blip, since the trend over the past four years has been stagnant at best, but that does not mean that it cannot be the start of a trend.
This also has to be seen in the context that this is an election year and economic activity always picks up in an election year. Therefore, it must also be taken into context that while loans to the industrial sector jumped 61 per cent, machinery imports only rose by nine per cent.
It is not unusual for high-interest, short-to-medium-term loans to pick up pace in election season because a lot of industrialists make campaign donations to the political party of their choice, or one that they feel will come into power and then hopefully make policies that cater to their or their sector’s needs. This is always the case when elections are around the corner.
But this is all just part of the picture. It would be wrong to assume that all the activity is purely election based. The signs of a turnaround are there.
Published in The Express Tribune, April 13th, 2013.
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