Government loans guarantee the strength of the banking system

Islamabad: During the last few months, cases of bankruptcy of some banks have come to light in countries like America, Switzerland and Lebanon, after which concerns are also being expressed on the Pakistani banking system.

According to the experts, the banking system of Pakistan is strong, the significant defects of the banking system of Pakistan are hidden in the structural system of the banking sector.

The major defects in the structure of Pakistani banks are concentration risk, non-performing loans, weak transparency and accountability systems, poor legal and regulatory framework, and limited bank transactions by citizens. These are the structural defects, due to which Pakistan’s banking system is under threat all the time.

But the outstanding quality of the Pakistani banking system is the provision of secured loans. Because the government receives most of the loans from Pakistani banks, the Pakistani banking system is far from failing despite these flaws.

According to the report of the State Bank, till February this year, the government has received a loan of 21.74 trillion rupees from private banks. Public sector organizations have borrowed Rs 11.24 trillion during this period, while the private sector has borrowed only Rs 8.6 trillion.

This mechanism of loans is not a good signal in economic and financial terms, but it bodes well for the future of the banking system. Because the chances of government bankruptcy are very limited compared to private enterprises.

It should be noted that the trend of borrowing by the government has increased tremendously over the years due to the Covid-19 relief work, rising expenditure and budget deficit.