SBP’s new guidelines

The coronavirus pandemic is impacting economies around the world. The IMF recently declared that we are officially 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 of Pakistan are playing a crucial role in stabilising 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 governing body. As someone who has been associated with this issue for quite some time, these steps are troubling to read. SBP’s new guidelines issued on March 26 are designed to favour investors and borrowers at the expense of our banks. Our financial institutions are already making significant bailouts, having extended loans in excess of Rs100 billion to listed companies in the 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. This will lead 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 supporting the economy — the local banks. It is for the central bank to rethink its strategy.

Ammar Muzaffar

Karachi