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SBP warns banks against default on sovereign loans

waq

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a commercial bank would go out of business if it stops lending to the govt

i rest my case
I have not analysed the balance sheets of banks... so I m not sure of about the proportion of government lendings in the total assets of banks... But I am sure that there are many other avenues in countries like Pakistan like providing credit to SMEs, agriculture sector etc besides lending to the government...
 

maithil

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Too much autonomy.. First declined to open account for Afghanistan Funds and now this. Bound to make borrowing dearer. Commercial banks will now get together and offer money to govt at higher rates, thus increasing debt servicing.
 

ARMalik

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Explain what exactly?


No sir... the article is talking about two issues... one about the application of IFRS-9.... that is an accounting issue... the second issue is what you have hoglighted in your post... even if central bank issues such instructions its not a risk issue for the banks...

Let's just cut the nonsense dude. IFRS "International Reporting Standard" or not, the State Bank is doing this to restrict Pakistan Rupees being issued to Pakistan government and its people.

1- The SBP’s instructions would also limit the banks’ ability to extend unlimited amount of loans to the government besides increasing the cost of borrowing. The enforcement of the six-month-old decision would coincide with the absolute autonomy being given to the SBP, including a prohibition on the government borrowing from the central bank.

2- The new regulations will force the banks to review their capital requirements and increase the money in proportionate to the weighted risks being given to the government loans.

So in summary:
-So SBP WILL NOT issue Pakistani Currency to its own government.
-SBP is now forcing Commercial Banks to TIGHTEN their lending criteria by applying IFRS-9 so that even from Commercial banks, the Pakistan Government will face resistance to borrow whatever amount it wishes, and will INCREASE THE COST OF BORROWING from these commercial banks.

Seriously, where on this Earth his happens??? Answer: Only in the banana republic
 

Norwegian

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Let's just cut the nonsense dude. IFRS "International Reporting Standard" or not, the State Bank is doing this to restrict Pakistan Rupees being issued to Pakistan government and its people.

1- The SBP’s instructions would also limit the banks’ ability to extend unlimited amount of loans to the government besides increasing the cost of borrowing. The enforcement of the six-month-old decision would coincide with the absolute autonomy being given to the SBP, including a prohibition on the government borrowing from the central bank.

2- The new regulations will force the banks to review their capital requirements and increase the money in proportionate to the weighted risks being given to the government loans.

So in summary:
-So SBP WILL NOT issue Pakistani Currency to its own government.
-SBP is now forcing Commercial Banks to TIGHTEN their lending criteria by applying IFRS-9 so that even from Commercial banks, the Pakistan Government will face resistance to borrow whatever amount it wishes, and will INCREASE THE COST OF BORROWING from these commercial banks.

Seriously, where on this Earth his happens??? Answer: Only in the banana republic
What's the problem? Unlimited almost free borrowing from the state bank, commercial banks by the govt in the past led to repeated economic crisis in Pakistan. With the new laws that stupid policy is stopped. So keep crying
0E8DED19-B7FF-4536-B42F-7EEBA32E6A22.png
 

ARMalik

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What's the problem? Unlimited almost free borrowing from the state bank, commercial banks by the govt in the past led to repeated economic crisis in Pakistan. With the new laws that stupid policy is stopped. So keep crying

Come on dude, you are posting BS from google. Try to get some basic understanding of the economical situation. Are you getting paid for this? Don't just feet lick this idiot IK. One thing is for sure, Riasat-e-Madina is fast tracking sood khori. There are liars and then there are pathological liars like IK, NS and Zardari. :lol: :lol:
 

Norwegian

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Come on dude, you are posting BS from google. Try to get some basic understanding of the economical situation. Are you getting paid for this? Don't just feet lick this idiot IK. One thing is for sure, Riasat-e-Madina is fast tracking sood khori. There are liars and then there are pathological liars like IK, NS and Zardari. :lol: :lol:
Do you have any degree in economics before you comment on issues you know nothing about
 

Patriot forever

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a commercial bank would go out of business if it stops lending to the govt

i rest my case

Bro you and I both agree and this is a problem not a benefit. How many small and medium enterprises have access to credit, how difficult is it for an SME to get a loan?

If you were a bank who would you prefer to lend a person with a tree where he can pluck money at will or someone who is running a genuine business and desperately needs some money to for keeping the business alive or to expand/increase productivity etc ? Why would they even care for the 2nd ?

SBP also has a similar scheme like TERF in works to target SME sector.

It does not mean banks will completely stop from lending to the government. 2nd the risk of government defaulting is minimum, SBP can also inject liquidity indirectly and can mop it up as well.

The real risk of us defaulting is on the external front always has been ($$).

The world has move forward these are basic reforms which should have been done long time ago. Our banks are capable enough just need to adapt.
 
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Patriot forever

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Let's just cut the nonsense dude. IFRS "International Reporting Standard" or not, the State Bank is doing this to restrict Pakistan Rupees being issued to Pakistan government and its people.

1- The SBP’s instructions would also limit the banks’ ability to extend unlimited amount of loans to the government besides increasing the cost of borrowing. The enforcement of the six-month-old decision would coincide with the absolute autonomy being given to the SBP, including a prohibition on the government borrowing from the central bank.

2- The new regulations will force the banks to review their capital requirements and increase the money in proportionate to the weighted risks being given to the government loans.

So in summary:
-So SBP WILL NOT issue Pakistani Currency to its own government.
-SBP is now forcing Commercial Banks to TIGHTEN their lending criteria by applying IFRS-9 so that even from Commercial banks, the Pakistan Government will face resistance to borrow whatever amount it wishes, and will INCREASE THE COST OF BORROWING from these commercial banks.

Seriously, where on this Earth his happens??? Answer: Only in the banana republic

Bro the purpose of a State Bank is opposite of acting like a government printer and bank role the government which defeats its purpose ( it is a lender of last resort just like we have nukes for defense ). A part from other functions, in the context of the thread one of its purpose is to control the 'money supply' in turn control inflation and liquidity using various tools at its disposal like interest rate.

I hope that answers your question. The rest of the details why how and other modalities of injecring liquidity if and when so required are answered in the above posts.

A government does not default in its own currency, the more the careless the government is the more unstability in the economy. There is a reason why governments pay so much importance to revenue collection.
 

Patriot forever

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Too much autonomy.. First declined to open account for Afghanistan Funds and now this. Bound to make borrowing dearer. Commercial banks will now get together and offer money to govt at higher rates, thus increasing debt servicing.

I know you are an Indian but let me respond so others don't get confused.

Let's see what happened when Pakistan government borrowed 7t from SBP , this in turn resulted in excess money supply in the market, in order to bring the resulting inflation under control SBP had to raise the interest rate to 13.5% to mop up the excess supply to prevent the heating up of economy and the demand pressure from exacerbating and also putting immense pressure on external front. So to sum it up does your argument hold ground when we take account all the variables?

Asfar as your send part is concerned they will be fined heavily besides the point they can't do it forever, it hurts the banks more in the long run.
 
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blueazure

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I have not analysed the balance sheets of banks... so I m not sure of about the proportion of government lendings in the total assets of banks... But I am sure that there are many other avenues in countries like Pakistan like providing credit to SMEs, agriculture sector etc besides lending to the government.


i suggest you do

-------

ever wonder why no bank fails in pakistan ?

, this in turn resulted in excess money supply in the market,


money supply in mkt is not dependent on commercial bank borrowing by govt ,

you are posting one conjecture after another
 

Patriot forever

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i suggest you do

-------

ever wonder why no bank fails in pakistan ?




money supply in mkt is not dependent on commercial bank borrowing by govt ,

you are posting one conjecture after another

Bro I think you misunderstood my post. Money supply in the market is destabilised by SBP printing to support the government ( 7 trillion in previous government ) this is what I mentioned.

This thread is about government vs private sector disbalance in the commercial banking sector.
This has to be corrected and the sooner the banks adapt the better.
Banks over reliance on government lending has to be checked to make room for credit availability for more productive sectors in our economy.

To back these reforms SBP is also working on risk sharing with commercial banks especially to facilitate credit availability to SME sector. This will open doors which were previously closed.
 
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Wood

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I know you are an Indian but let me respond so others don't get confused.

Let's see what happened when Pakistan government borrowed 7t from SBP , this in turn resulted in excess money supply in the market, in order to bring the resulting inflation under control SBP had to raise the interest rate to 13.5% to mop up the excess supply to prevent the heating up of economy and the demand pressure from exacerbating and also putting immense pressure on external front. So to sum it up does your argument hold ground when we take account all the variables?

Asfar as your send part is concerned they will be fined heavily besides the point they can't do it forever, it hurts the banks more in the long run.
But when Gov. is not allowed to print money, it will have to cut spending and go into austerity. This can also deflate growth as gov. is usually the biggest spender in the economy. It is a double edge!
 

Norwegian

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But when Gov. is not allowed to print money, it will have to cut spending and go into austerity. This can also deflate growth as gov. is usually the biggest spender in the economy. It is a double edge!
Debt based Unsustainable high growth is worse than slow or no growth at all
 

Wood

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Debt based Unsustainable high growth is worse than slow or no growth at all
This is easy to say when you are not trying to run for re-election in a developing country. If growth is not maintained, then the citizens of such countries will lose their livelihood. It is not an academic argument for internet message boards. :undecided:
 

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