Another Attack on Consumer Rights
Mouth widening spreads in the country's banking sector has increased the banks' income significantly but has become a major cause of the dreadful reduction in the business activities leading to a high rate of unemployment. This, while ruing the public savings, has been forcing people to invest less and ultimately leading to an unfair distribution of wealth in the country.
According to SBP, the spread in Pakistan has mounted from 4.63% in FY 2003 to 8.90% in FY 2011. Whereas, this spread is only 2%-5% in other countries. An increase of 269% in deposits base and 268% increase in bank assets has increased the banks' pre-tax profit by 9,991% from 2001 to 2010. Due to this, real rate of return (inflation adjusted) has been decreased to -6.5% in 2010 from 3% in 2001. This means that the depositors lose their money due to the negative returns, e. g., a deposit rate of 6% and inflation rate of 12% depicts that the real increase in the deposit holders' purchasing power is negative 6% – a loss to the depositor.
Keeping in view the above mentioned situation, what do you think that which one of the following steps can bring down the high banking spread in Pakistan?
1. Providing alternate investment opportunities, or
2. increasing the efficiency of banks by controlling the administrative costs and nonperforming loans of banks, or
3. implementing a strict regulatory policy over interest rates by SBP
You are required to select only one of the above options to resolve the issue of spread in Pakistan. Your answer should be supported with strong logical reasons.
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