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Experts monitoring

control over banks'

working capital

RECORDER REPORT

KARACHI: Banking experts are closely monitoring the control over the capital which seems to be working so far 'positively.'

It was observed by the banking analyst of Fitch IBCA, Singapore, Ambreesh Srivastava, at a seminar on Asian Banking on Thursday, organised by the Pakistan Credit Rating Agency. Along with distinguished bankers, State Bank Governor Dr. Ishrat Hussain also attended.

Srivastava discussed mainly the banking situation which emerged after the economic crisis in the Far East.

"Korea is the most striking example of the proactive approach. The authorities have forced the banks to reserve/write-off non performing loans (NPLs) or to sell them off to a third party," said the analyst.

As the loans are sold at estimated market value, the resulting losses are crippling Korean banks, he observed.

Much needs to be done to promote corporate sector reform, but the moves toward the establishment of a sound financial system are impressive.

He also discussed banking situation in Thailand, Philippines, Taiwan and Indonesia and found similarity in the impact of the economic crisis.

However, he saw a different situation in Malaysia where the government kept controlling the capital movement.

"In the case of Malaysia, the approach is more in the line with the interventionist model," said the analyst.

Banks with high level of NPLs are required to reduce them to less than 10 percent of loans by selling them to an agency while another agency recapitalises weakened banks.

At the same time the government has pushed through mergers and acquisitions involving some large troubled banks, removing some weakened banks.

The government has taken decisive action to strengthen the banking sector, but at the same time it has reversed the previous tendency towards stricter prudential regulation and put pressure on banks to expand their loan books.

"Like its approach includes some unorthodox elements, which pose some risk but which may nevertheless produce the desired effects," said Srivastava.

He explained the banking phenomenon in view of the Asian crisis and observed that India could not be affected because of Indian banks' greater exposure to the government securities.

Peter Monro of Fitch IBCA, London, also presented programmes regarding the banking data which is available at the internet.