CORPORATE WINDOW: Shifting sands of the banking sector

When the government’s needs are very high along with interest rates, the private sector will always be crowded out, said JS Bank President & CEO Basir Shamsie in an interview. “Even if banks were willing to lend money to the private sector, there is not much demand at the current monetary policy rate.” He elaborated on the dynamics of the credit market, explaining that the risk and reward trade-off. When interest rates decrease, credit spreads tend to decline because the economic environment improves, reducing the risk associated with lending. This leads to lenders charging lower additional premiums over the benchmark rate, reflecting a more favourable credit perspective. Thus, the trade-off for credit is more favourable at lower interest rates, which allows for narrower spreads. However, the high level of economic risk is causing a shift in credit from the private sector to T-bills and the public sector.