By Our Staff Reporter
KARACHI, March 3: Flooded with excess liquidity, big commercial banks are now making larger loans to the agricultural sector than in the past. Agricultural loans disbursed by five major commercial banks in the first half of this fiscal year totalled Rs15.1 billion.

This was substantially higher than Rs13.4 billion loans made by Zarai (Agricultural) Taraqiati Bank Ltd. This was for the first time in many years that combined agricultural loans of five commercial banks were higher than ZTBL farm lendings. The big five banks are (i) National Bank (ii) Habib Bank (iii) United Bank (iv) Muslim Commercial Bank and (v) Allied Bank Ltd.

In fiscal year July/June 2002/03 these banks had made Rs22.7 billion agricultural loans against ZTBL lendings of Rs29.3 billion. In fiscal year 2001/02 their agricultural lendings at Rs17.5 billion were substantially lower than that of Rs29.1 billion of Agriculture Development Bank of Pakistan now ZTBL.

In 2000/01 they had made Rs12.1 billion worth of agricultural loans less than half of the ADBP lendings of Rs27.6 billion. And in 1999/00 these banks had performed even worse: their combined agricultural lending at Rs9.3 billion was only 38 per cent of that of the ADBP.

Senior bankers say major commercial banks have been able to lend more to the agriculture sector in the first half of this fiscal year not only because of increased liquidity but also because they now have better expertise. "We are now equipped to make generous yet prudent lending to the farm sector in terms of credit approvals and disbursement," said a senior executive of National Bank.

Bankers say that the Rs15.1 billion farm lending by five major commercial banks represents only their farm lending under the State Bank mandatory scheme. "In addition to that we are making farm loans on our own," said the NBP official who could not immediately give figures.

Habib Bank has also been making big loans to the farming community under its Haryali Scheme in addition to its agricultural lending under the State Bank scheme.

In a presentation on Financial Sector Reforms and Pro-Poor Growth made last month State Bank Governor Dr.Ishrat Husain noted that despite increase in farm credit volumes "bank credit covers only 15 per cent of the farming community."

The number of the borrowers seeking farm credit rose steadily from 664,815 in fiscal year 1999/00 to 814,737 in fiscal 2002/03. But since the total number of farms in Pakistan is 6.62 million the coverage of bank credit to the farming community remains still very low.

Major commercial banks still having large branch networks are better positioned than the small local private banks to lend more to the farming community.

But bankers say recovery of farm loans is more difficult than the recovery of industrial or trade loans. "That makes it difficult for the banks to make big strides in farm loaning," said a senior executive of Muslim Commercial Bank.

Local private banks have also increased their farm lending though its volume is not too large. Fifteen local private banks made Rs1.3 billion farm loans in the first half of this fiscal year against Rs1.4 billion in the entire last fiscal year. Senior bankers say agricultural loaning by these banks may reach Rs3 billion at the end of this fiscal year in June.

Apparently the availability of excess liquidity with the banks have emboldened them to lend more to the farming community but another key factor is the high rate of return on agricultural loans at a time when the interest rates are at their historic lows.

Most banks are still making farm loans at a double digit markup whereas they are charging 4-8 per cent markup on industrial and trade loans depending upon the credit worthiness of their clients.

DAWN