The coronavirus pandemic is impacting economies around the world. The IMF recently declared that we are now facing a recession. Pakistan has witnessed a substantial economic slowdown and while the government is playing its part to aid the population, it is doing little to balance the scales.
Banks and financial institutions falling under the remit of the State Bank are playing a crucial role in stabilizing the economy but the country's most important tertiary-based sector may be put in jeopardy as a result of the new regulations announced by the supreme governing body. As someone who has been associated with the field for quite some time, these steps are troubling to read about.
SBP's new guidelines issued on 26th March are designed to favour investors and borrowers at the expense of banks in the country. Our financial institutions are already making significant bailouts having extended loans in excess of Rs 100 billion to listed companies in light of dropping share prices. The new regulations require banks to increase their exposure to a dangerous level.
The deferred principal payment for one year, the increase in credit limits and a drastic drop in interest rates are bound to create financial anomalies that will make banks bleed leading to a bigger crisis than the country has ever witnessed in the past.
These are trying times, but that doesn't mandate the SBP to facilitate industries at the expense of a crucial pillar that is supporting the economy, i.e., local banks. It is high time that the central bank rethinks its strategy.
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