FACING a credit crunch and starved of long-term project financing, businesses in Khyber Pakhtunkhwa complain of a growing disconnect between banks’ lending and their deposit mobilisation from the province.
While the commercial banks are aggressively rising bank deposits, it is argued, they shy away from extending advances with same zeal and in the same proportion. The concern of the business community over declining access to finance in the province has not been addressed.
The Khyber Pakhtunkhwa Chamber of Commerce and Industry (KPCCI) has conducted a study recently on the dynamics of bank deposits and advances in the country and provinces for a decade (2001 to 2011) to ascertain trends in deposit and advances. The study reveals that while bank deposits shot up four times in the period under review, the share of advances between provinces was devoid of equity.
The country’s total bank deposits surged from Rs1,309 billion in 2001 to Rs5,688 billion by 2011. The province/region-wise share in deposits during 2001-11 remained range bound in case of Punjab and Sindh. In 2011, Punjab had a market share of 43 per cent and Sindh 34 per cent.
Bank deposits in the KP increased from Rs101 billion in 2001 to Rs377 billion in 2011, up 3.7 times. During the same period bank advances increased from Rs26 billion to Rs49 billion, recording a growth of 1.9 times. This widened the gap in bank deposits and advances for KP. The share in deposits dropped from eight per cent to 6.6 per cent whereas share of bank advances dropped from 2.89 per cent to 1.49 per cent over the same period. FATA’s share was too small to be reflected in round figures of SBP statistics.
The findings of the study point to the fact that KP’s share in bank deposits and advances has actually dropped in comparison with Punjab, Sind and Islamabad region, and this is more drastic in bank advances.
KP’s business take it as a startling revelation for a province struggling with bruises of war on terror, slow economic growth, low business confidence, poor investment, flight of capital, etc.
In fact, in KP, the lending to deposit ratio has gradually become adverse over the last decade and in comparison with other provinces. The share in growth in total bank advances during 2001-11 shows this huge disparity whereby Punjab got 49 per cent, Sindh 41 per cent and KP as 0.96 per cent.
Former KPCCI President Afan Aziz complains that commercial banks were reluctant to lend to businessmen in KP. Bank lending to the private sector in KP has dropped from 25 per cent in 2001 to 13 per cent in 2011.
“This non-availability of credit to the private sector has caused an irreversible economic slowdown in the province”, Aziz added.
Some allege that many banks have an unannounced policy not to extend advances to businesses and individuals in the province. The banks have declared most cities especially Peshawar and Mardan, as red zone, Aziz said, adding, the businessmen are facing financial crunch to make further investment in the country.
Another businessman, Zahid Shinwari said that debt default rate is very minimal in KP as compared to other provinces. Still, commercial banks are not lending and demanded that the central bank evolve a mechanism for binding banks to lend a certain percentage of the deposits they raised in the province.
The businesses in KP are also facing difficulty to obtain long-term project loans as all major banks are mainly focused on short-term lending and prefer to stay away from long-term financing.