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Proposed restriction to affect banks investment in equities

KARACHI: Any proposed restriction on commercial banks in respect of acquisition of shares would adversely affect the health of the stock exchanges of the country.

Liquidity would vanish and institutions would be dried up. The privatisation process would be affected and it is feared that PSO, SNGPL, HBL, UBL, KESC fit cases for sale would not get appropriate prices.

The entire program might face a half hearted situation. This is the view of senior brokers, retailers and analysts working on the portfolios of different companies.

The Karachi Stock Exchange has emerged as one of the most profitable markets in year 2002 and it is growing at rapid pace. In case such a proposal is thrust on us, the things would reverse, said a senior member of the KSE.

They were commenting on the State Bank of Pakistan (SBP) proposals to introduce laws pertaining to acquisition of shares, restricting their investment in the equities. The proposal that commercial banks total investment in shares would not exceed 20 per cent would deter the liquidity in the market.

The commercial banks would not own shares of any company more than 5 per cent of its own capital base. The State Bank has sent these proposals to Banking circles for comments.

No sooner the unconfirmed news of putting restrictions poured in the Karachi Stock exchange on Tuesday, the investors reacted sharply. Targeted shares were hit back.

The market closed with abrupt plunge of 105 points registering an increase of 3.4 per cent. Though the shock was not only for the proposed action of the State Bank but also the rumor from the UN inspectors visiting our plants had also added the fuel.

A senior member of the KSE said that the institutional support has remained a key and vital organ of the equity development in this part of the world. The banks have been creating liquidity enabling the investors for participating in the portfolio investment.

A former President of the KSE said that it is time that SBP should withdraw such a proposal as it would deter privatisation process which is very much desired and has become a pre requisite. In case the prices fall considerably as it would happen the foreign investors would be reluctant to buy our stakes at offered and desirable prices. He agreed that the putting more money by the bank no doubt inflates the share prices but that is the need of the hour he said.

The SBP perhaps has prepared such type of proposal to divert the funds for other uses than the equities. As no sector looks profitable and the returns are lower, the major thrust is on investing in equities which at least provide a reasonable markup both in short run and long run. As only two sectors namely the real estates and the stocks are attractive, banks are reluctant to give money to any other sector.

SBP has also showed its displeasure with commercial banks that they are not honouring the customers seeking loans for production purposes. The Bank through a circular has said that the commercial banks are not acknowledging the request of the borrowers.

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	Proposed restriction to affect banks investment in equities KARACHI: Any proposed restriction on commercial banks in respect of acquisition of shares would adversely affect the health of the stock exchanges of the country. Liquidity would vanish and institutions would be dried up. The privatisation process would be affected and it is feared that PSO, SNGPL, HBL, UBL, KESC fit cases for sale would not get appropriate prices. The entire program might face a half hearted situation. This is the view of senior brokers, retailers and analysts working on the portfolios of different companies. The Karachi Stock Exchange has emerged as one of the most profitable markets in year 2002 and it is growing at rapid pace. In case such a proposal is thrust on us, the things would reverse, said a senior member of the KSE. They were commenting on the State Bank of Pakistan (SBP) proposals to introduce laws pertaining to acquisition of shares, restricting their investment in the equities. The proposal that commercial banks total investment in shares would not exceed 20 per cent would deter the liquidity in the market. The commercial banks would not own shares of any company more than 5 per cent of its own capital base. The State Bank has sent these proposals to Banking circles for comments. No sooner the unconfirmed news of putting restrictions poured in the Karachi Stock exchange on Tuesday, the investors reacted sharply. Targeted shares were hit back. The market closed with abrupt plunge of 105 points registering an increase of 3.4 per cent. Though the shock was not only for the proposed action of the State Bank but also the rumor from the UN inspectors visiting our plants had also added the fuel. A senior member of the KSE said that the institutional support has remained a key and vital organ of the equity development in this part of the world. The banks have been creating liquidity enabling the investors for participating in the portfolio investment. A former President of the KSE said that it is time that SBP should withdraw such a proposal as it would deter privatisation process which is very much desired and has become a pre requisite. In case the prices fall considerably as it would happen the foreign investors would be reluctant to buy our stakes at offered and desirable prices. He agreed that the putting more money by the bank no doubt inflates the share prices but that is the need of the hour he said. The SBP perhaps has prepared such type of proposal to divert the funds for other uses than the equities. As no sector looks profitable and the returns are lower, the major thrust is on investing in equities which at least provide a reasonable markup both in short run and long run. As only two sectors namely the real estates and the stocks are attractive, banks are reluctant to give money to any other sector. SBP has also showed its displeasure with commercial banks that they are not honouring the customers seeking loans for production purposes. The Bank through a circular has said that the commercial banks are not acknowledging the request of the borrowers.
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