950822

FPCCI demands

downward revision

of mark-up

RECORDER REPORT

KARACHI: As against prevailing interest rate of 5 percent in the international market, the markup rate in Pakistan has jumped to an alarming level of 24 percent, following the decapping of maximum mark-up in March 1995.

This was noted in the meeting of the FPCCI's standing committee on banking, credit and finance, presided over by its Chairman Majid Sultan Khawaja, at Federation House on Tuesday.

Opposing the decapping of maximum mark-up rate the meeting demanded downward revision of the rate to enable the local industry to compete in the export market.

Majid Sultan Khawaja pointed out that in Malaysia whose exports have jumped to as high as U.S.$55 billion the rate of interest is 7 percent. In India the maximum rate of interest is 14 percent and in the developed country like France it is 6.5 percent.

He said that as long as the government continues to resort to deficit financing for budgetary suppport, there would be greater pressure on bank credit and the private sector would be the sufferer in the process.

The meeting noted that the administrative costs of the Nationalized Commercial Banks were above 4 percent. Against 1.5 percent of the foreign banks. It was suggested that even a quarter percent reduction in administrative costs would result in 2 percent reduction in mark-up rate. It was also noted that the cost of funds of the banks, the mark-up charge on advances and the margin in between are too high and need to be reduced to bring down the mark-up rate.

The meeting decried the maligning of the business community on Rs 80 billion defaults and felt that bad debts and non-performing loans were part and parcel of banking operations. It was noted that $2.66 billion (Rs 80 billion) defaults in Pakistan were not so bad when compared to the $444 billion defaults in Japan.

The meeting felt that the balance sheets of the Nationalised Commercial Banks were inflated as the bad debts continued to be shown as receivables. It felt that the nationalised commercial banking were keeping high mark-up rates to show hefty profits and opined that the sooner they are privatized, the better it will be for the health of the financial sector of the country.

It was felt that the profits of the Nationalized Commercial Banks should be appropriated towards bad debts, thereby decreasing the defaulted figures, as was done by Muslim Commercial Bank which during last four years had written off bad debts to the tune of Rs 320 million and had emerged as the first bank in Pakistan with a clean slate.