SBP Governor calls for debt market development

[Salman]

SBP Governor calls for debt market development

Karachi—Pakistan’s economy and the financial sector are now at a stage where they can support and benefit from a vibrant and efficient debt market. This was stated by the Governor State Bank of Pakistan (SBP) Yaseen Anwar while delivering his keynote address on the “Role of Financial Institutions and Capital Markets in Pakistan’s Economy” at PAF Air War College in Karachi Wednesday.

The size of private debt, or term finance certificates (TFCs) in Pakistan, remained around Rs 74 billion (0.5% of GDP), which is paltry as compared to the outstanding domestic government debt of Rs 4.64 trillion (31.4% of GDP). There is a clearly under-exploited capacity available to support economic growth, he noted.

He said that banks continue to be the main provider of debt in the system. “In the absence of an active capital market, the commercial entities fail to procure long term debt financing, and rely on short and medium term loans from banks. Banks are trying to limit their credit risk and it has become more challenging to raise private debt for a business”, he said, adding that while some credit uptake may take place in the future, it is unlikely that banks will be keen to finance new long term projects anytime soon.

“We are facing several domestic issues that limit our ability to fully attain our potential. Our financial institutions and businesses must become more competitive and innovative, regulators like SBP and SECP must actively facilitate financial markets, and the Government should step up its function of providing infrastructure for growth, most crucially to meet the energy demand of productive sectors”, he emphasized.

There is a need for coordinated efforts and support of the Government as well as of regulators (SBP & SECP) and banks for the development of a fixed income market that is necessary to diversify the financial sector, which in turn would enhance its role in supporting economic growth”, he observed. “We have unambiguously designated our future path that includes three main priorities (a) to make our banking sector more resilient against exogenous shocks through our macro (systemic) and micro prudential framework, (b) actively encourage technological solutions for financial access and an efficient payment system, and © address the development needs of the financial markets and broaden the array of product and services as well as outreach”.

Anwar said that SBP would like to see our banks operating at world class standards and synergistically reinforcing the real economy. “We are actively working at a pace to achieve this goal, and despite the current economic challenges, we are confident that we will succeed”, he said. The total assets of our banks amount to Rs 7.7 trillion as of end-June 2011. The deposits stand at Rs 6 trillion, while advances and investments of the sector are Rs 3.8 trillion and Rs 2.6 trillion respectively, he added. He said that in spite of the economic slowdown, the pre-tax profit of the banking sector for the year 2010 was Rs 105 billion and for the first six month of 2011, it was Rs 77 billion.