Bank personal loans mark-up hits 26-29pc

[LRE]

Bank personal loans mark-up hits 26-29pc
By JAVED MAHMOOD and ERUM ZAIDI submitted 17 hours 25 minutes ago
KARACHI - The mark-up rate for personal loans had reached the highest ceiling of 26-29 per cent in this financial year, The Nation learnt.
In 2007-08 the domestic banks were offering personal loans at 18-22 per cent, but in August the mark-up rate for the issuance of personal loans had been raised 26 to 29 per cent, sources in banking sector said.
At present after the credit cards, the personal loans envisage the highest rate of interest, said bankers. It can also be said that the personal loans mark-up rate in Pakistan is the highest-ever in the world, they said. Bankers pointed out that the discount rate had been raised to 13 per cent while the Karachi Interbank Operations Rate had breached 14 per cent as a result the banks have raised the mark-up rates for the personal loans and the credit cards during the past few months.
Worth noting is that the banks offer personal loans at 25 to 26 per cent to only those individuals whose companies/groups exist on the list of approved companies of the banks.
However, if the borrower does not belong to the non-approved companies list, he would have to pay the maximum rate of mark-up, 29pc, a banker said.
Presently most of the leading banks are offering personal loans, but at very expensive rate of return.
Bankers pointed out that the demand of personal loans and credit cards had declined substantially because of unprecedented and unexpected increase in the mark-up rates since the appointment of SBP Governor Dr Shamshad Akhtar, who is consistently inflating the discount rate although this recipe had not only flopped miserably to control inflation, but also landed the borrowers in trouble who had to pay more mark-up.
The one-point strategy of hike in the discount rate had also increased the magnitude and risk of default of consumer loans, landing the banks and the borrowers into a serious trouble, bankers said. Bankers said that as the SBP Governor’s policy had miserably flopped to achieve the desired results, she should be removed immediately from the top slot of the central bank.
The record surge in markup rates being charged by the commercial banks have substantially declined the growth in all categories of consumer disbursements. In a wake of current monetary policy along with 13 percent discount rate, consumers of personal loans are facing increase additional financial expenses include high markups and bank charges, becoming lenders more restraint to avail consumer financing facilities.
On account of growing non-performing loans which swelled to 212.3 billion rupees at the end of June 30, 2008 that made banks vigilant to extend auto and personal loans while some of the banks are still providing credit cards financing facility to their consumers. The sharp growth in consumer disbursement had yielded the banks advances growth during Jan-March 2008. However, with the hike in interest rates, the demand in consumer financing has been declining for the last 3 months.

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