ISLAMABAD - High banking spread in Pakistan is one of the major causes of low savings, dwindling investment and sluggish business growth in Pakistan. Therefore, the government should reduce the high banking spread and bring down the mark up rates to encourage savings, investment and easy credit facility for growth of business activities.

This was stated by Yassar Sakhi Butt, President Islamabad Chamber of Commerce and Industry (ICCI), in a statement. He said that banking spread in Pakistan was more than 7 percent which was one of the highest while it was 3 percent in USA, 1.7 percent in Japan, 4 percent in India, 4.4 percent in Sir Lanka and 5.5 percent in Nepal.

He demanded that the State Bank of Pakistan must direct commercial banks to narrow down the gap between lending and deposit rates for providing better returns to the depositors and encouraging savings.

ICCI President said that the banking sector was earning significant mark-up income on the basis of high spreads and high interest rates, which was not a wise approach to facilitate the growth of private sector in the country. He said that banks should reinvest the depositor’s money in private sector’s development and business activities rather than investing it in zero risk government securities.

Yassar Sakhi Butt said that the high interest rate was pushing up cost of doing business in Pakistan and was also discouraging new investment as investors are very sensitive to the movement in interest rates. In such circumstances, the increased cost of production would make our products more uncompetitive both in national and international markets, he maintained.

He said that Pakistan was witnessing a sharp decline in private sector investment and it was the high time that SBP should change its tight monetary policy approach and reduce key policy discount rate to encourage the private sector investment and growth of business activities.

ICCI President also criticised the heavy borrowing approach of the Government from the banking sector, which was crowding out the private sector from credit facility.

He stressed that instead of resorting to heavy borrowing from banks to reduce fiscal deficit, Government should take measures to expand the tax base by bringing untaxed sectors of economy into the tax net, which was the right approach to generate more revenue and overcome the fiscal deficit.