ISLAMABAD: The State Bank of Pakistan (SBP) on Monday asked banks to consider increasing the credit limits of Petroleum Marketing Companies (OMC) and refineries in line with rising international oil prices to to ensure an uninterrupted supply chain.
In a virtual meeting chaired by SBP Governor Dr Reza Baqir and attended by senior banking and CMO representatives, the central bank made it clear that an oil company default cannot be used as justification for cripple the entire oil industry and, therefore, the national economy.
The SBP leadership, which also included a deputy governor, told the banks to look at the matter realistically because the exchange rate had fallen and international prices had risen significantly. “You cannot close your eyes to the realities on the ground and suffocate the system,” they told bankers. “It’s a problem of the country and everyone has to play their part,” one participant said quoting one of the SBP participants.
The meeting was told that banks were reluctant to extend credit limits due to Hascol’s default despite an almost 100% increase in international oil prices over the past year. The oil industry told the SBP that not only OMC but also refineries face challenges, they normally supply 60-70% diesel.
It was noted that the harvest season was approaching and that unless the oil marketing companies and refineries were facilitated, the agricultural sector would suffer badly. Banks were urged to consider their risks fairly, put in place risk mitigation measures and increase credit limits where needed.
The meeting constituted a five-member committee comprising heads of National Bank of Pakistan, Habib Bank Limited, Bank Alfalah, Bank Al Habib and MCB Bank to come up with reasonable proposals on how to increase credit limits.
The oil industry argued that the problem was such that it could lead to a bigger crisis than the one the country faced in May-June 2020, when the country’s transportation came to a standstill for a few days. The attention of the SBP had also been drawn by the federal government “to the insufficiency of credit lines and the reluctance of banks to open letters of credit for oil imports due to various apprehensions”.
The government had written to the central bank that the country was heavily dependent on imported fuels and that to meet the requirements, the OMC had to import petroleum products like diesel, gasoline and jet fuel to meet local demand.
Posted in Dawn, March 1, 2022