Weak foreclosure laws hinder consumer lending

An interview given by Tawfiq Husain, Secretary General, Pakistan Banks’ Association to Erum Zaidi, Correspondent, The News International, on April 25, 2015.

KARACHI: Tawfiq Husain, Secretary General, Pakistan Banks’ Association, foresees a moderate pickup in consumer lending as a result of the softening of interest rates. However, he emphasises the need to strengthen foreclosure laws and other enablers for this business.

Q. Many analysts criticise banks for reducing private sector lending and their frequent investment into the risk-free government papers. Is that an accurate assessment?

A. It is not true that banks are not extending private sector loans and parking their entire funds into market treasury bills and Pakistan Investment Bonds. Based on the banking sector’s statistics, there is a year-on-year growth in loans or advances. However, it is true that banks’ investments in the government papers have been higher than the credit disbursed to the private sector.

Q. How do you see the outlook for consumer finance?

A. The outlook for consumer finance business is better, given declining interest rates. There could be pickup in certain consumer finance products like personal loans and auto loans in the coming quarters. Softening lending rates would make mortgages more affordable, stimulating consumption.

However, to facilitate more consumer lending, particularly mortgage and housing finance, the foreclosure laws need to be strengthened and recovery process improved. Section 15 A of Financial Institution Recovery Ordinance was struck down by the Supreme Court.

This has affected the recovery process for banks. SBP has worked on an amendment to Section 15 A, which, we hope, will strengthen the recovery process and facilitate increased lending, in general, and mortgage and housing finance, in particular. Also, there is a need for Central Electronic Registry for charges on movable assets of partnerships, sole proprietorships and individuals. This will facilitate lending to all borrowers who are not private or public limited companies.

Q. How important is financial inclusion for the documentation of the economy?

A. The government and the State Bank have developed a National Financial Inclusion Strategy (NFIS) which is very important.

The importance of this initiative can be gauged from the fact that presently only 10 percent of Pakistani adults have an account with formal financial institutions, well below the South Asian average of 33 percent. Therefore, we have a lot of catching up to do. The NFIS focuses on creating an enabling environment for financial inclusion and its resulting benefits for the people and the economy. With a lot more savers and borrowers coming into the formal banking/financial system, this will be an important step towards documenting the economy and contributing to the broadening of the tax base of the country.

Q. Any update of recommendations for the upcoming budget?

A. PBA will be sending its recommendations shortly for the 2015-16 budget. We hope the government and the Federal Board of Revenue will remove section 165A of Finance Act 2013. Apart from other recommendations, we will also propose some measures for the government to increase the tax payer base and revenue.

Q. The government has approved Draft Credit Bureaus Act, 2015. What do you say about it?

A. It is good to encourage private credit bureaus and to expand the scope of these bureaus to include positive credit information and other financial information (bill payment history). There is also a need to develop a database of frauds committed against financial institutions.

Source : The News International

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