Rationalisation required: ICCI calls for reduced banking spread

Claims it is affecting SMEs, impeding growth of business.

ISLAMABAD:

Islamabad Chamber of Commerce and Industry (ICCI) has called upon the government to reduce high banking spread as it is impeding the growth of business activities in the country.

ICCI President Shaban Khalid said that small and medium enterprises (SMEs) are the backbone of any economy, but the banking spread in Pakistan is hampering growth in the private sector, especially the SMEs. The government should ensure rationalisation of banking spread based on the current market conditions.

According to a World Bank report, banking spread is more than 6% in Pakistan while it was 1.3% in Bangladesh, 3% in China, 0.9% in Japan, 1.8% in Malaysia and 4.6% in Sri Lanka in 2012.

“About 60 per cent deposits of businessmen are lying in current accounts as they believe in interest free banking, which means such deposits are free of cost to the banks as they have to pay no interest on them,” said Khalid. “However, banks are investing these and other deposits in risk free government securities and other instruments and earning huge profits.”

He said investment in any country depends on easy credit facility as low lending rates enable investors to borrow easily for expanding existing business or starting a new business.

High banking spread also prevents businesses from investing in new plants and technology up-gradation to produce world standards quality products. Thus, high interest rates coupled with high markup rates retards the growth of SMEs as it leads to higher cost of capital and reduces investment and business development. Khalid said the high banking spread also pushes up the cost of production, making our products uncompetitive and hurting exports.

Published in The Express Tribune, June 1^st, 2014.

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