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 5. TRADE  6. GULF



Oct 29 - Nov 04, 2001

Banks set to cut lending rates

Banks are ready to reduce their lending rates after a huge 2 per cent cut in the State Bank discount rate. But the lowering of their lending rates may not correspond with the cut in discount rate.

"We are working on the nitty-gritty of our plan to cut lending rates," said senior executive of a state-run bank. "But it is too soon and too difficult to give numbers."

Senior executives of other state-run and private banks made a similar statement: they are ready to cut lending rates but that might not commensurate with the reduction in the SBP discount rate.

The reasons are obvious. Banks cannot cut costs overnight. The lowering of SBP discount rate would enable them to borrow money from the central bank at a cheaper rate. It would also give them access to cheaper call money from within the inter-bank market. "But to make a meaningful cut in our lending rates, we need to cut down the deposit rates as well and that is a difficult thing to do," said head of a state-run bank who declined to be named.

Banks already owe a cut in their lending rates in response to a 2 per cent cut in SBP discount rate in July-August this year.

The SBP had lowered its discount rate from 14 to 13 per cent in July and then to 12 per cent in August. But instead of coming down the average lending rate of all banks rose from 13.74 per cent at end-June to 14.07 per cent at end-August.

Now after the lowering of SBP discount rate from 12 to 10 per cent, banks are rather more obliged to cut their lending rates.

Unlike in the developed world where a cut in the discount rate of central bank is instantly followed by rate-cuts by banks, the banks operating in Pakistan respond to any change in SBP discount rate with a time lag. Sometime it takes banks months to do this.

It depends largely on the room available for lowering deposit rate because the banks burdened with heavy bad debts find it very difficult to cut the cost of intermediation.

Japan may lend $800m: report

Japan may lend Pakistan as much as 100 billion yen ($814 million) to reward the government of General Pervez Musharraf for its support of US-led military strikes in Afghanistan, the es Japan Times reported on Thursday.

The Japanese government is expected to make a decision on the sanctions as early as Friday, local media said.

Japan froze all new loans and grants except for humanitarian aid after Pakistan and India conducted nuclear tests in 1998. Japan is also considering lifting sanctions against India.

The new lending to Pakistan is likely to be in long-term loans carrying low interest rates, the English-language newspaper said, citing government sources. The sources did not say whether the loans would be extended immediately, the newspaper said.

$300m WB loan for banking sector

The World Bank has approved a $300-million credit for Banking Sector Restructuring and Privatization Project to assist the ongoing banking reform programme.

According to an announcement made by the local World Bank office on Wednesday, the new 300 million dollar credit had been approved by the Bank on Tuesday. Earlier, the bank had approved 350 million dollar Structural Adjustment Credit for Pakistan to alleviate poverty and improve the growth rate.

Pakistan is working to develop a competitive private banking system, free from the interference of vested interests and operating under a strong regulatory framework. It is also developing a more effective banking court system.

SBP buys $400m from kerb

The State Bank purchased about $400 million from the open currency market between July-September to build its foreign exchange reserves.

Sources close to the SBP say the central bank is still buying dollars from the kerb but the daily purchase volume is shrinking.

In fiscal 2000-01 the SBP had to purchase $2.1 billion from the open market to fill in the gap in the balance of payments and to build up its reserves.

$ makes swift recovery

The dollar, after losing 40 paisa against the rupee in the open currency market, on Wednesday made a swift recovery of 45 paisa on Thursday. Money changers said the Wednesday close of Rs61.35/Rs 61.50 per dollar lured some speculators into dollar buying as they thought the greenback could not go further down. That lifted it up to Rs61.80/Rs61.95 on Thursday.

Engro earns

Engro Chemical Pakistan Limited announced on Thursday, the third quarter net profit at Rs419 million, showing 18 per cent growth over Rs356 million earned during same period a year ago.

The net income for nine months to end-September stood at Rs706 million, up 65 per cent over the three quarter earnings amounting to Rs429 million, in 2000.

SBP cuts discount rate

The State Bank on Saturday cut its benchmark discount rate by 2 per cent to 10 per cent to pull the economy out of the recent slump. This is the third rate-cut so far during this fiscal year. SBP said the new rate is effective from Monday.

SBP to cut PIBs coupon rates

The State Bank would cut the coupon rates of long term Pakistan Investment Bonds in November when three-year and five-year bonds would be up for sale.

Economic Adviser of the State Bank Dr Mushtaq A Khan told a meeting of primary dealers that the coupon rate would remain intact at 13 per cent for 10-year bonds that would be auctioned on Monday. Primary dealers are the banks selected by the central bank to sell PIBs in the secondary market.

Gold prices on decline

Bullion prices continued to sink in the local market, touching Rs5,632 per 10 grams on Tuesday from Rs5,705 a day earlier, due to continuing fall in international rates.

Global gold prices closed at $275 per ounce, down from yesterday's rate of $278 per ounce for lack of investors' interest.

Gold prices has fallen by Rs111 per 10 grams since Saturday. The 10 tola gold bar (116.640 grams) is now quoted at Rs65,690 as compared to Rs67,000 on Saturday.