High mark up rates to affect wheat procurement: PFMA

The flour industry has cautioned the government that its policy of allowing commercial banks to finance private sector for aggressive wheat procurement may not work to the expectations due to high mark up.
The industry also demanded of the State Bank of Pakistan (SBP) to cap maximum mark up limit by commercial banks to help it go for a procurement in a big way in the upcoming season.
In a letter addressed to SBP governor Dr Shamshad Akhtar, Punjab Flour Mills Association (PFMA) chairman Haji M Ibrahim demanded that mark up for commercial banks should be scaled downward, saying "Kibor-based high mark up rate is adversely affecting business and industrial activities in the country."
He said the flour industry depended heavily on lending from the commercial banks for wheat-buying operation as it involves huge amount and added that different experiences were made for fixing up mark up on banks' lending and the current Kibor-based mark up system was adding to the banks profit at the cost of industrial sector and trade activities.
Haji Ibrahim said that the banks' role should be of a facilitator to the industry helping it become vibrant and strong to boost up the economy and to get the possible lowest return as mark up on its services. But unfortunately, he added, it was not true in the case of current mark up system in the country.
The PFMA chairman said that the commercial banks were charging 2 percent to 5 percent mark-up over Kibor and multiplying their annual profits. The balance sheets and financial statements of all the commercial banks are indicative of very high profits that runs into billions with handsome percentage of yearly growth in the case of each bank, he maintained and said but this growth was at the cost of the industrial sector and business community.
Haji Ibrahim said, "The business and industrial sectors are facing a lot of difficulties to cope up with increasing trend of mark up. Due to indirect taxes and very high mark up rates our produces have not remained competitive in the world market." The flour industry has sought the SBP governor's personal interest and demanded her to look into the matter and take immediate steps and instruct commercial banks to charge reasonable mark up from the industrial sector and traders on loans.
Haji Ibrahim said that Kibor is a basic indicator of money market and the SBP should scale down mark up for all the commercial banks to 0.5-1 percent.