Our domestic return on savings is zero

[ziaulislam]

LAHORE: Pakistan has the lowest savings rate in the region, said State Bank of Pakistan Governor Reza Baqir, adding “The real return on savings accounts currently is zero; anyone who has a savings account is getting 11-12% return whereas inflation right now is 12%.”

Interacting with members of the American Business Forum on Sunday evening, he said that the savings rate is important for Pakistan because it is a big reason why the country has a balance of payments problem.

“If we have to finance a higher rate of investment, then we either have to borrow from abroad or domestic pool of savings. This is the reason why we habitually have balance of payments problems because our savings are not enough to meet our investments,” Baqir said.

“How can one expect people to save when they are getting zero return in actual, this has triggered informal means of savings by people like in the real estate sector, which we now want to bring under the banking network.”

He said that for the last couple of years, the central bank has been preoccupied with much bigger problems like tackling falling level of foreign currency reserves and trying to deal with external position, which used to be difficult to manage.

“We now have more space as we have managed to fix fiscal reforms, our reserves are increasing and now we don’t need to worry about crisis,” said the governor, adding, “We are now turning our attention towards structural areas and are pushing very hard our agenda of financial inclusion, particularly through fin tech.”

He said that Pakistan’s economy will still grow at the rate of 3.5% this fiscal year.

In Pakistan, bottlenecks hold up $14b foreign loans

Talking about fluctuations in the exchange rate and inflation adjustments, he said, “The tough part has already been done. We take difficult and non-popular decisions, our strategy was to give bad news as early as possible since bad news in installments makes it hard for the people to get optimistic about the future.”

He said that the economy was witnessing a change in composition as exports were growing and this positive development will also translate into activities in other sectors. However, the changes will take time to come into effect, he added.
“We have schemes where we can offer credit to exporters like the Long Term Financing Facility and Export Finance Scheme. We are looking to transform and increase them since these schemes have historically been monopolised by a few exporting sectors,” the governor remarked.

He shared that they were looking for new sectors and working on a mechanism to reward or incentivise innovation and emergence of new exporting sectors.

The central bank governor stressed that they were trying to implement sustainable fiscal reforms so the country did not have to go back to the International Monetary Fund (IMF).

“We did the difficult part, now is the time for structural reforms, which will not be as tough as fiscal reforms but there is still going to be opposition since we live in a country where people have vested interests,” Baqir added.

 

[ziaulislam]

SBP governor says tough part is over for Pakistan
https://c.tribune.com.pk/2019/12/2119183-rezabaqirx-1576513424-436-160x120.jpg

 

[The Accountant]

I think the reason is not lower interest but the religious reasons. People dont want to save in interest bearing instruments otherwise at the time when inflation was single digit government bonds were offering around 10%.

Give them secured investment opportunities.

 

[ejaz007]

I think the reason is not lower interest but the religious reasons. People dont want to save in interest bearing instruments otherwise at the time when inflation was single digit government bonds were offering around 10%.

Give them secured investment opportunities.

Yes. You are right.

 

[Yaseen1]

people should learn to take risk and invest their savings in new startups instead of keeping all savings in bank accounts which only benefits banking sector,there are many ways to earn return on savings,it is not only limited to keeping money at banks

 

[Manidabest]

yes devaluation makes things worst

 

[The Accountant]

yes devaluation makes things worst

No the devaluation was long overdue. It made things look bad in short run but in long run it will give us a lot of benefits

 

[HRK]

I think the reason is not lower interest but the religious reasons. People dont want to save in interest bearing instruments otherwise at the time when inflation was single digit government bonds were offering around 10%.

Give them secured investment opportunities.

one of the reason as i have witness many and by many I means hundreds and thousands depends on branch sizes of banks, who use to put their saving in current account ....

Then there is a category of people who use Property and Gold as safer investing option and this category is much bigger than the previous category mention above

Then third category of people who like invest in foreign currency especially in US dollars. In short we can say our masses have general preference in Holdings rather in Saving.

 

[blueazure]

which bank is offering 11 percent savings rate ? mr reza baqir is as clueless as his peers ( ref, tomato price ofc)

i just checked faysal bank, they offer 7 % ( im sure taxes are excluded ) .

how can a bank offer 11% to its customers when KIBOR itself is 13 percent ?

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with every passing day its getting clear that PTIs economy fix is all but talk and manipulating the usual numbers ,

 

[ps3linux]

one of the reason as i have witness many and by many I means hundreds and thousands depends on branch sizes of banks, who use to put their saving in current account ....

Then there is a category of people who use Property and Gold as safer investing option and this category is much bigger than the previous category mention above

Then third category of people who like invest in foreign currency especially in US dollars. In short we can say our masses have general preference in Holdings rather in Saving.

Reason I call media as "stupid media" is due to the fact the "experts" are as much economic experts as a road side "dental fixture expert" is dental specialist compared to a BDS. People would pick and choose and come up with half baked recipe as expert opinion, you have already highlighted the key "investment", "saving" vehicles in Pakistan "real estate", "Gold", "Currency" speculation and investment.

It's the same as one of our HR guy came up with this "manual" on controlling "employee turnover" and one of the most important reason was "due to boss", now I don't buy this kind of BS, and I kept digging till he accepted and informed that he picked all this BS from an american study. First thing we learn in marketing is demographics and that applies to more than products; savings in the western terms is equities/mutual funds/bonds/commodities and deposits in that order but here it is real estate/gold/currency/equities/mutual funds/deposits in that order.

Don't even want to touch upon interest rates vs inflation and real returns. The whole concept of deposits and domestic saving in Pakistan is entirely opposite to rest of the world and it is time we should come up with our own standards instead of copy/pasting crap from westernized standards.

 

[The Accountant]

one of the reason as i have witness many and by many I means hundreds and thousands depends on branch sizes of banks, who use to put their saving in current account ....

Then there is a category of people who use Property and Gold as safer investing option and this category is much bigger than the previous category mention above

Then third category of people who like invest in foreign currency especially in US dollars. In short we can say our masses have general preference in Holdings rather in Saving.

Yup. The first category is the one who want to avoid interest including me.

The second category is mix of people. Some want to avoid tax, some invest for risk free return and others do not trust government.

The last category is the worst as they are no good to the country.

Anyways, I feel that real estate investment phenomena cant be addressed as it is world wide issue and is also suitable for secured retirement. In absence of any social security program this cant be avoided. However, mobilizing legal current account cash, gold and foreign currency is very important.

Government needs to create a venture capital fund that can establish giant listed companies like SSGC, PPL, SNGPL and PSO. IPO of such entities can be used for mobilizing savings of individuals.

 

[HRK]

he whole concept of deposits and domestic saving in Pakistan is entirely opposite to rest of the world and it is time we should come up with our own standards instead of copy/pasting crap from westernized standards.

exactly .... people have gold hidden in their houses and and banks safe lockers which are not doing any good to the economy.

During my days in Banking in my circle I roughly presented the idea of accepting gold as deposit and offer some acceptable rate of return / profit to depositors same as we accept cash in saving accounts and offer return on deposit money then use that cash for advancing loans, so the idea was simple to accept gold as deposit and then use the value of gold in Cash to advance loans this was actually similar concept adopted by jew bankers of early days before the initiation of formal banking but due to many practical hurdles we find it difficult to implement

Yup. The first category is the one who want to avoid interest including me.

including me but we are the most beneficial category of depositors for banks ....

 

[ps3linux]

Yup. The first category is the one who want to avoid interest including me.

The second category is mix of people. Some want to avoid tax, some invest for risk free return and others do not trust government.

The last category is the worst as they are no good to the country.

First one is interesting as it includes traders/businesses who benefit in terms of free cheque books/pay order/online charges in return for current account, some of them are the ones who have credit lines (RF/TF) from the banks and thus have no alternate but to operate a current account.

As for interest its a topic which requires serious debate, at one end there is the concept of RIBA, at the other the periodic devaluation/inflation eating up the value of deposit. Islamic banks saving account in the guise of ijarah or sharaka are really cheating the depositors out.

Due to SECP and company risk guidelines I am not really allowed to play in equities/pmex freely so I prefer to keep all my free cash in islamic debt market mutual funds. I even transfer my salary in mutual funds both way via the app. That way I am not giving free money to the banker.

Tax evasion while operating a bank account is becoming a nightmare, was in Faisalabad and billionaires not paying taxes are now scared like sh*t most of them have now started to get notice from FBR, accomplice bankers are now facing FIA inquiries including the Faisalabad in-charge of the largest Islamic bank of Pakistan.

exactly .... people have gold hidden in their houses and and banks safe lockers which are not doing any good to the economy.

During my days in Banking in my circle I roughly presented the idea of accepting gold as deposit and offer some acceptable rate of return / profit to depositors same as we accept cash in saving accounts and offer return on deposit money then use that cash for advancing loans, so the idea was simple to accept gold as deposit and then use the value of gold in Cash to advance loans this was actually similar concept adopted by jew bankers of early days before the initiation of formal banking but due to many practical hurdles we find it difficult to implement


including me but we are the most beneficial category of depositors for banks ....

Thanks for reminding banking history of yore, so long ago I studied it in my uni days.

Sir jee, micro-finance banks are doing the same although their credit lines are from 50k to 500k, ubank had almost 40% gold backed lending when I last saw their financials about 2 years ago. If we look at their mark up rates they charge an arm and a leg, like 36-50% markup, but when I spoke with the farmers they were happy like anything as the banks charges them on p.a basis and they retire the debt every 4.5 months and save 1.5 months markup, bank is happy they are happy, whereas the alternate is Aarhti who charges fixed 100-150% regardless of how early the farmer retires the debt.

I keep saying grey listing by FATF is the best friendly gesture by India in the last 70+ years and a blessing in disguise for Pakistan as the next requirements are to bring bullion and real estate under regulatory framework, which will work in Pakistan's favor. I too have spoken with few seniors in Banking (Credit/treasury heads) about gold as collateral they do have their share of observation and possible problems but let see if there is a will then there is a way.

 

[The Accountant]

including me but we are the most beneficial category of depositors for banks ....

Agreed but unfortunately dont have any option atleast for running balances and monthly income.

 

[HRK]

micro-finance banks are doing the same although their credit lines are from 50k to 500k, ubank had almost 40% gold backed lending when I last saw their financials about 2 years ago.

My idea was not about lending against gold as collateral which micro finance banks are doing ...

In our environment most families due to traditions and emotional attachments avoid placement of gold as security against loans at all cost, my idea was simple to accept gold as deposit same as banks do accept cash as deposit, and the target market that idea was those clients who use to keep gold in bank lockers and there are many families who keeps millions of worth of gold outside of bank locker insurance limit and pay a annual fee as well to banks so drew that idea on the basis that the gold was already with the bank from many years [in some cases from decades] but we were not earning anything other than annual fee from lockers

if there is a will then there is a way.

Broadly we identified hurdles in three main category
- Absence of Laws and Regulation related to it
- Number of Risk from Operations to finance and Reputation etc.
- No Mechanism to offer Rate of Return on Gold Deposit