Private sector borrowing surges 100pc to Rs318bln in July-Feb

KARACHI: Borrowing by business houses jumped almost 100 percent to the highest level in more than two years during the first eight months of the current fiscal 2015/16, central bank said on Monday, as entrepreneurs invested in their businesses while economic activities under China–Pakistan Economic Corridor (CPEC) also accelerated.

The private sector credit off-take increased to Rs318 billion in July-February of fiscal 2015/16 from Rs159 billion in the corresponding months of the last fiscal year.

According to the State Bank of Pakistan’s statistics for the period July 1, 2015 to February 26, 2016, the credit to non-government sector increased to Rs320 billion as compared to Rs207.43 billion during the corresponding period of the last fiscal year.

Analysts said that ease in government borrowing from commercial banks and the central bank created room for the private sector credit.

They also attributed the private sector credit growth to lower oil prices, planned improvement in energy supply, investment related to CPEC, buoyant construction activity and increased credit growth would bode well for the country’s economic growth.

Analysts said decade long energy crisis, flagging economy and rising borrowing costs till 2015 weighed on the ability of companies and individuals to borrow.  Banks also scaled back disbursements to business as economic activity lost steam in recent past.

Banks, however, continue to grow their loan books faster on the back of the government massive borrowing to feed budget deficit.

The SBP in its recently issued quarterly review mentioned that the government had estimated disbursements of Rs207 billion, around $2.1 billion - from China in the current fiscal year in which power and construction would be the prime recipients.

The analysts forecast a further surge in the private sector credit due to significant fall in the lending rates.

Meanwhile, banking spreads have contracted to 5.12 percent in January as compared to 5.19 percent in the previous month.

As per the latest numbers released by the SBP, the banking sector spreads have been at the lowest level in the last 11-years. The pronounced fall in weighted average lending rate was the prime factor for the compression in line with a drop in three-month KIBOR.

The government borrowing from commercial banks has reduced by seven percent to Rs951 billion during the first eight months of the current fiscal year as compared to Rs1,018 billion in the corresponding months of the last fiscal year.