ZTBL may raise markup rate to 14.5 percent

The Zarai Tarqiati Bank (ZTBL) is likely to increase mark-up rate to 14.5 percent, from 8 percent, aimed at helping the bank to operate on sustainable basis, sources told Business Recorder. The Economic Co-ordination Committee (ECC) of the Cabinet in its meeting on October 13, 2011, which was presided over by Finance Minister Dr Abdul Hafeez Shaikh, cleared the proposal backed by the Finance Ministry.
ZTBL caters for credit requirements of the farming community. It has introduced a supervised credit system through a network of 354 branches spread all over the country with 1367 Mobile Credit Officers providing credit at the doorsteps of the farmers. The cost of supervised credit being higher as compared to the cost of lending by commercial banks and keeping in view the higher rate of incidence of default in agriculture sector, the lending rate has allowed a reasonable spread to ZTBL since 1979.
The State Bank of Pakistan (SBP) maintains that ZTBL's share in total outstanding agri loans is around 50 percent, while the rest of the loans are provided by commercial banks, at 16 percent per annum. ZTBL's subsidised lending is creating a market distortion, which is a major irritant in enhancement of agri credit by commercial banks at market terms and on sustainable basis. Therefore, to provide level playing field to commercial banks the interest rate cap on ZTBL needs to be removed at the earliest.
ZTBL has extended loans at 14 percent mark-up since 1995-96. However, the rate was reduced from 14 percent to 8 percent from July 1, 2004 under President's relief package 2004. The GoP had agreed to pick up loss of revenue due to reduction of mark-up with ZTBL submitting reimbursement claims on account of reduction of mark-up which aggregates to Rs 22.293 billion up to December 31, 2010. The GoP has not so far released any funds against these claims.
When mark-up on ZTBL was reduced in 2004, interest rate in the financial market was at the lowest ie. Treasury Bill (T.Bill) rate was between 2-3 percent. Now the T-Bill rates in the country are above 13 percent (one year T.Bill rate as per last auction on February 23, 2011, is 13.8473 percent).
Besides, changes in various financial indicators resulted in upward trend in cost structure which further increased cost of doing business on the one hand and increased credit requirement of farming community on the other.
The low mark-up rate did not help ZTBL to generate sufficient resources to meet the ever-increasing demand for credit for agriculture and servicing of State Bank of Pakistan (SBP) debt simultaneously. However, the bank continued to meet the demand for agriculture credit and was compelled to make default in servicing of SBP debt.
Over time, the Bank has been experiencing a state of stagnation with regard to extension of credit facilities. The lack of resources is limiting the Bank outreach resulting in low 'Return on Assets' (RoA).
The income analysis shows that the Bank's profitability on account of current lending operations ie from core business alone, had to be augmented from recovery of off-balance sheet portfolio.
In order to overcome this scenario, Asianic, in a revamping plan, proposed the mark-up on ZTBL loans to be increased. Thus, enhancement of mark-up on loans to the previous rate ie at 14.5 percent per annum would help the Bank operate on sustainable basis. At the same time, the rebate on prompt payment would be allowed at 1 percent, to encourage timely repayment, and thus avoid 'Non Performing Loans' (NPLs).
ZTBL, in a letter requested that cap on lending rate of ZTBL be removed enabling the ZTBL Board of Directors to fix market-based lending rates which at present range from 13 percent to 19 percent.
The government has recently appointed President of ZTBL, Zaka Ashraf, who is currently facing several charges, as Chairman of Pakistan Cricket Board (PCB). However, he is still reportedly presiding over different meetings on operational and administrative matters and trying to undo some of the actions he took as President of the Bank and some of the Bank's officials who once were employees of Ashraf Group of Industries or Ashraf Sugar Mills are now leaving.
The Supreme Court on October 15, 2011, accepted a write petition against Zaka Ashraf for illegal appointments in the Bank.
According to an official of Finance Ministry, the Ministry is investigating illegal appointments in ZTBL. He, however, said the government has yet to find successor of Zaka Asharf.
Sources said Zaka wants to give the charge to his confidante Chief Operating Officer Miss Ruhi whose appointment has also been challenged in the Supreme Court.