Bank default rumours continue to fan panic

[LRE]

Bank default rumours continue to fan panic



Friday, October 10, 2008
By Jawwad Rizvi

LAHORE: Withdrawals of huge amounts from the banks continued on Thursday as the efforts of central bank to dilute the impression of financial sector institutions defaults by easing the Cash Reserve Ratio (CRR) has not changed the mind of general public.

Cash withdrawal panic was seen in every bank but it was highest at Bank Alfalah and Standard Charted Bank. The people related to banking industry have also recommended to their friends and relatives to close their accounts from Bank Alfalah as soon as possible.

Although the nature of default could not be specified the rumour of Bank Alfalah’s default remained active in banking industry on Thursday as well. The default of the bank was talk of every bank and the banking industry people were worried about the future of the industry in case one of the biggest banks goes in default.

“Any bank would go into default due to continued withdrawals of huge amounts,” banking experts said.

“Usually such rumours of bank’s default can cause its closure,” a senior banker of a multinational bank said asking not to be quoted as his opinion can adversely affect the crisis of the particular bank. He said that the central bank should take some measure to bailout that particular bank by taking special steps. He was of the view that defaulting of a major entity of the banking sector will damage overall banking industry, which is already in recession in Pakistan. If such a large bank defaults in Pakistan than any other bank is not safe from default, he opined.

Criticizing central bank policy, he said the measure of relaxing the CRR is too late. The central bank was watching world financial crunch scenario and should have taken such steps prior to default rumours of any bank.

Another senior banker of one of Pakistan’s largest banking network said that current scenario of Middle East based group’s bank is like that of the Bank of Credit & Commerce International (BCCI).

“I think people had forgotten about the owners of the BCCI and the way the bank had collapsed”, he said adding that the current crisis of Middle East based bank is similar to BCCI and it is risky for all banking sector. He further added that the central bank and government should take timely measures to save the whole banking industry from any big financial crisis.

“The government will make all out efforts to save the Bank Alfalah from default,” said senior bankers of the State Bank of Pakistan on the condition of anonymity, as they were not authorised to comment on any issue.

They pointed out that the Middle East based group has made huge investments in Pakistan in financial sector including UBL, telecom sector Warid, Wateen and as well as in real estate. Thus it is unacceptable that the bank will default, they said. However, they said that no instructions from government high-ups have been received at SBP for protecting the bank.

They said rumour regarding default of Bank Alfalah was hot topic of the day and the central bank executives were heard talking about the issue during lunch break.

http://www.thenews.com.pk/daily_detail.asp?id=140101