“Our cash deposit generation, day-to-day lending, inland transfer of money, bank-to-bank clearance of cheques, opening of letters of credit and issuance of bank guarantees, you name anything, all witnessed a slowdown,” said president of a big local bank.
Head of operations of another bank said that catering to cash requirements of branches also became too difficult. “We have set up some sort of cash supply centres in regional offices for faster cash supply to branches. But on two particular days, our systems could not work. We wanted to avoid security risks as violence was rife in the areas connecting such centres and the branches that ran out of cash though they were located in relatively less-troubled neighbourhoods.”
A senior executive of a third bank said, branches of his bank located in the most-troubled areas transacted hardly any business for two days.. “Even on other days of the week, the volumes were markedly lower than normal.” Online banking does help some people transact business even when the city life is far from normal. “But the majority of clients prefer walking into branches. And banks also need manning their dedicated desks to transact online banking. So, when our employees do not turn up to sit on branch counters or in back offices we get into trouble. And mind you, not all branches of all banks are online.”
During the week under review inter-bank money market, however, worked as usual. Though pre-Eid cash withdrawals from banks were slower than in the corresponding period of the last year, they were faster than in the previous week.
The State Bank of Pakistan, as usual, injected enough funds to maintain liquidity at reasonable levels and banks were not seen frequenting the SBP discount window to overcome cash shortages. Overnight interbank rates, therefore, remained far below the SBP’s key policy rate.
Foreign exchange dealers said, clearance of a few fuel oil import bills weakened the rupee against the dollar despite a gush of export and remittances’ dollars.
The rupee has lost one per cent of its value versus the greenback since the start of the new fiscal year on July 1.
Bankers say, the SBP continues to intervene in forex market but these interventions are aimed more at checking exchange rate volatility rather than boosting the rupee’s value artificially. In the last fiscal year, local currency was down just half a percentage point against the dollar despite suspension of the IMF lending programme, which has yet to be revived.
“Had our exports and remittances not grown fast, the rupee would have become much weaker,” commented treasurer of a local bank. Since December 2010, monthly export earnings have remained above $2 billion and remittances over a billion dollars, both showing high double-digit annualised growth rates.
He said a full one percentage point fall in the rupee value had decelerated realisation of export proceeds. “Some export houses have started holding export dollars hoping that further depreciation in the rupee value would benefit them.” But he and other bankers said that importers were still not showing much enthusiasm in forward dollar buying which has saved the rupee from additional weakening.
Interestingly, the dollar was seen selling in the open market 40-50 paisa below the inter-bank market rates. Executives of forex companies said for last 2-3 years people were investing more in gold for higher gains than in anything else. “Nobody is interested in holding hard currencies these days.
The financial crisis and global recession of 2008-09 and the revisit of another serious debt crisis in the US and Europe have made people scary of looking towards foreign currencies as a store of value,” remarked an office-bearer of Exchange Companies Association of Pakistan.
During the week under review, auction of long-term Pakistan Investment Bonds attracted enough response from banks despite a flawed yield curve. Bankers said, this in the absence of private sector credit demand, made sense for them to keep investing money in government treasuries and bonds.
The cut-off rates of three-year to 10-year bonds ranged between 13.43 and 13.50 per cent, only slightly higher than the yields on six-month and one-year T-bills. Between July 1 and August 6 this year, private sector has retired Rs87 billion banks’ credit on net basis.