ajpirzada
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A few days ago the State Bank of Pakistan (SBP) issued a license for a new scheduled bank: the Sindh Bank. Two days ago, the Minister of State for Economics said that the government had to give Rs 300 billion a year to keep the bigger state-owned enterprises afloat and the government was keen to stop this eventually. The Minister of Finance has been going around saying that the government needs to cut expenditure and raise more money - even trying to impose an unpopular GST and ad hoc taxes on income. We also need money for reconstruction. And we are begging and borrowing from the world to stay afloat. Yet the government moved the application for Sindh Bank and the SBP approved it.
We know that a lot of the smaller banks are in financial trouble and the SBP has been recommending closures and mergers. Economic times are hard internationally and there is no way the local economy is going to recover overnight. This was not enough to deter the government and for the State Bank to raise any objections.
What new thing can another bank bring to the Pakistani market, given that there are plenty of general and specialised institutions already present and some are struggling to survive? In case there are economically viable commercial opportunities available in micro-finance, small loans, or agriculture in Sindh, why are the existing banks not looking at these and how will a new bank be able to do better? If the opportunities that the Sindh Bank officials mention in their press conferences are not commercially viable, a bank is not the right vehicle to pursue them and the province should find another way of providing the subsidy, in case they do want to subsidise.
But, more importantly, why did the provincial government think it needed a bank that it controls? We have an agriculture development bank, an SME bank and a women bank already; we even have a number of microfinance institutions for focusing on productive loans for smaller borrowers, but still the provincial government wants its own bank. Either the bank will be run on commercial basis, in which case given the number of banks already available we did not need another bank, or the provincial government will allow sectional interests to exploit the bank, even if it focuses operations in Sindh, in which case its viability will be under threat from the very start.
Government money, which is taxpayer money, being pledged as paid-up capital for the bank is entrusted to the government to be spent on the welfare of the people and not for doing reverse income distribution - from the poor to the rich.
The equity and depositor money that will be raised once the bank becomes operational will be used to give loans to the powerful in Sindh, to subsidise the landlords and/or other political constituencies, and then borrowers will default or get loans written off. The government will bail out the bank by giving it more tax money, and we will have the situation where the money given by the poor and tax paying population would have subsidised the rich yet again.
The State Bank is well aware of the likelihood of the latter happening, as it did with Punjab Bank, yet the license was issued. As a regulator, the State Bank is supposed to look out for the interest of the people. It is the legal responsibility of SBP to ensure banking institutions are not robbed, are not utilised for non-authorised purposes, and they follow prudential rules and regulations. And where there are strong possibilities of fraud happening a priori, the State Bank should be more wary. One has to wonder if State Bank is really autonomous and independent, and one cannot but fear that government intentions in making the bank do not seem to be transparent.
The experiences of and from Khyber Bank and the Punjab Bank were not heeded as well. The fraud and tunneling case from the Punjab Bank is still in courts. The provincial governments, politicians and bureaucrats, have exploited these banks and one reason they are still around is that the respective governments are afraid of privatizing them as that will open up Pandora's box that will be hard to manage.
What do bureaucrats know about running banks? Has the history of state-owned enterprises been so good that we needed another avenue for creative and entrepreneurial energies of bureaucrats? It appears that the Chief Secretary and Finance Secretary of the government of Sindh will be on the board for the Sindh Bank: the bank will be run no more efficiently than government runs its other business.
If this government is looking to create trust with the people of the country, to improve governance, this move is not a confidence builder. And the State Bank has not lived up to its obligation either.
The writer is an Associate Professor of Economics at LUMS (currently on leave) and a Senior Advisor at Open Society Foundation (OSF). He can be reached at fbari@sorosny.org
New bank on the block | Pakistan | News | Newspaper | Daily | English | Online
We know that a lot of the smaller banks are in financial trouble and the SBP has been recommending closures and mergers. Economic times are hard internationally and there is no way the local economy is going to recover overnight. This was not enough to deter the government and for the State Bank to raise any objections.
What new thing can another bank bring to the Pakistani market, given that there are plenty of general and specialised institutions already present and some are struggling to survive? In case there are economically viable commercial opportunities available in micro-finance, small loans, or agriculture in Sindh, why are the existing banks not looking at these and how will a new bank be able to do better? If the opportunities that the Sindh Bank officials mention in their press conferences are not commercially viable, a bank is not the right vehicle to pursue them and the province should find another way of providing the subsidy, in case they do want to subsidise.
But, more importantly, why did the provincial government think it needed a bank that it controls? We have an agriculture development bank, an SME bank and a women bank already; we even have a number of microfinance institutions for focusing on productive loans for smaller borrowers, but still the provincial government wants its own bank. Either the bank will be run on commercial basis, in which case given the number of banks already available we did not need another bank, or the provincial government will allow sectional interests to exploit the bank, even if it focuses operations in Sindh, in which case its viability will be under threat from the very start.
Government money, which is taxpayer money, being pledged as paid-up capital for the bank is entrusted to the government to be spent on the welfare of the people and not for doing reverse income distribution - from the poor to the rich.
The equity and depositor money that will be raised once the bank becomes operational will be used to give loans to the powerful in Sindh, to subsidise the landlords and/or other political constituencies, and then borrowers will default or get loans written off. The government will bail out the bank by giving it more tax money, and we will have the situation where the money given by the poor and tax paying population would have subsidised the rich yet again.
The State Bank is well aware of the likelihood of the latter happening, as it did with Punjab Bank, yet the license was issued. As a regulator, the State Bank is supposed to look out for the interest of the people. It is the legal responsibility of SBP to ensure banking institutions are not robbed, are not utilised for non-authorised purposes, and they follow prudential rules and regulations. And where there are strong possibilities of fraud happening a priori, the State Bank should be more wary. One has to wonder if State Bank is really autonomous and independent, and one cannot but fear that government intentions in making the bank do not seem to be transparent.
The experiences of and from Khyber Bank and the Punjab Bank were not heeded as well. The fraud and tunneling case from the Punjab Bank is still in courts. The provincial governments, politicians and bureaucrats, have exploited these banks and one reason they are still around is that the respective governments are afraid of privatizing them as that will open up Pandora's box that will be hard to manage.
What do bureaucrats know about running banks? Has the history of state-owned enterprises been so good that we needed another avenue for creative and entrepreneurial energies of bureaucrats? It appears that the Chief Secretary and Finance Secretary of the government of Sindh will be on the board for the Sindh Bank: the bank will be run no more efficiently than government runs its other business.
If this government is looking to create trust with the people of the country, to improve governance, this move is not a confidence builder. And the State Bank has not lived up to its obligation either.
The writer is an Associate Professor of Economics at LUMS (currently on leave) and a Senior Advisor at Open Society Foundation (OSF). He can be reached at fbari@sorosny.org
New bank on the block | Pakistan | News | Newspaper | Daily | English | Online
