MONEY WEEK: three specialised banks account for 33 percent of total provisions

Three specialised banks, namely, ZTBL (formerly ADBP), IDBP and PPCB, accounted for nearly one-third (Rs 43 billion) of total provisions (Rs 132 billion) of 38 scheduled banks as of July 27, 2005, according to the latest data released by the State Bank of Pakistan (SBP).
The provisions made by the three specialised banks worked out to nearly half of the provisions made by 35 commercial banks (viz 4 public sector commercial banks, 20 local private/privatised banks and 11 foreign banks).
In the case of specialised banks provisions worked out to Rs 0.39 million for every million of gross loans and Rs 0.38 million for every million of assets, whereas in the case of commercial banks these worked out to only Rs 0.05 million for every million of gross loans and Rs 0.02 million for every million of assets.
This indicates that management of loan portfolio by specialised banks had been poorest among the scheduled banks. One of the reasons of this gross mismanagement of loans was cheap resource availability from the central bank ever since the inception of these banks.
For long, these banks have enjoyed cheap SBP credit lines, including credit lines involving agricultural finance in the case of ADBP (now ZTBL), credit lines involving SBP''s LMM (locally manufactured machinery) finance scheme in the case of IDBP and the cheapest credit lines comprising co-operative finance in the case of former FBC for lending to provincial co-operative banks, like PPCB, and through them to co-operatives at large.
The other reason is that the larger two of them, namely, ZTBL and IDBP, are public sector banks and suffer from all inefficiencies of public enterprises.
There has been gross misutilization of cheap central bank money by these banks who hardly ensured proper end-use of their loans. In fact, if they were interested in anything, it was the utilisation of central bank cheap funds, no matter it occurred on the last day of the year.
This had been because of the instrument of Credit Plan, which would envisage additional credit lines for them in the ensuing fiscal year, over and above their existing outstanding loan portfolio. Political loaning to powerful clients was also rampant who never cared to pay back the loans.
The result was a massive tally of non-performing loans, against which these banks were required to make appropriate provisions under the new set of Prudential Regulations.
Total assets and liabilities of scheduled banks during the week ended on August 27, 2005 were provisionally estimated at Rs 3209.2 billion, or Rs 23.6 billion higher than the level that obtained on August 20, 2005.
The rise was mainly accounted for by major increases in assets under the head ''cash and balances with treasury banks'' (up Rs 13.7 billion) and ''lending to financial institutions'' (up Rs 10.5 billion), besides modest increases of Rs 3.2 billion and Rs 3.5 billion under ''investments'' and ''advances-net of provisions'', respectively, partly offset by decline in assets under ''balances with other banks'' (down Rs 8.5 billion).
With ''net assets'' and ''liabilities representing them'' remaining more or less unchanged over the week, the increase of Rs 23.6 billion over the week, on the liabilities side, was attributable to increases of Rs 8.4 billion in ''borrowings'', Rs 6.6 billion in ''bills payable'', Rs 4.7 billion in ''deposits and other accounts'' and Rs 4.2 billion in ''other liabilities''.
In the meanwhile, on August 27, 2005, liquid foreign exchange reserves of the country declined further to $12,239.6 million (including $9,525.6 million with the SBP and $2,714.0 million with the scheduled banks) compared with $12,361.1 million ($9,622.9 million with SBP and $2,738.2 million with banks) on August 20, 2005--indicating a decline of $121.5 million shared by the SBP ($97.3 million) and the scheduled banks ($24.2 million).
It may be of interest to note that since the beginning of new financial year to date, the liquid foreign exchange reserves have, on weekly basis, been declining at an average rate of about $43 million and meant depletion of reserves in the amount of some $384 million in the past nine weeks.
During whole of this period, only once, ie, in the second week of July, 2005, the reserves increased by about $59 million. Under the circumstances, it is rightly feared by some analysts that, mainly on the back of rising oil prices, total import bill during FY06 may surge to $28 billion against the projected $22 billion, meaning continued draw-down of reserves of the country.
During the week ended on August 27, 2005, easy supply of dollars helped the FE market end up in a mixed trend. In the open market, the rupee gained five paisa at the week-end against dollar for buying and selling at Rs 60.05 and Rs 60.15, respectively, after witnessing movements both ways during the course of the week.
In the interbank market also, the rupee picked up six paisa at Rs 59.62 and Rs 59.64 on the buying and selling counters. The local currency, however, lost its lustre versus euro where it lost 60 paisa for buying and selling at Rs 73.40 and Rs 73.70, respectively.
The FE pundits are of the view that if dollar supplies continued improving in the coming weeks, the domestic currency might gain some more ground versus US dollar.