Pakistani banks ignored as Chinese financing dominates CPEC

LAHORE: Pakistani banks are missing out on the China-Pakistan Economic Corridor (CPEC) boom as Chinese financial institutions fill in the gap of providing majority financing for these projects.

And as they keenly await the opportunity to exploit the boom by holding more than $20b of financing, only $474m of local funding is being used within CPEC projects said Saad Hashemy, Research Director at Karachi brokerage house Topline Securities to Bloomberg.

Hashemy added that out of current $6-$7b projects ongoing under CPEC, only 10pc or around Rs50b constitutes local financing.

There is a danger that Chinese domination in CPEC will leave Pakistan vulnerable to paying interest on loans procured from their banks in the future and benefits expected to be accrued later on may not be fully realized.

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In a statement to Bloomberg, Standard Chartered Plc Economist Bilal Khan stated that majority of financing for CPEC projects will come from China itself.

Ex-finance minister Shaukat Tareen believes conventional Pakistani banks could provide over Rs1.7t of financing to these projects and Islamic banks are said to be holding over Rs500 surplus liquidity said Meezan Bank’s head of product development, Ahmed Ali Siddiqui.

Tareen said there was a lack of private sector involvement in these projects, which included local banks considering the surplus liquidity available and the need for such avenues, he argued.

Conventional and Islamic banks are said to have parked over 82pc of their advances into government securities out of a total of Rs9.26t reported the foreign publication.

A senior analyst Amreen Somrani at JS Capital Ltd believes local banks will have limited opportunities to provide direct financing in CPEC projects.

Norman Sze, national leader at government affair unit Deloitte China said, “The finance sector in Pakistan is not very advanced and mature,” Sze said. “They could participate into the projects, but it would be difficult for them to meet such a huge financing demand.”

Bank Alfalah’s chief economist, Mushtaq Khan believes that if CPEC isn’t export oriented, it won’t be successful for Pakistan, he said to Bloomberg.

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