KARACHI: Bank credit to the private sector rose 54 percent in almost 10 months of the current fiscal year of 2016/17, as financial institutions continued to lend firms in the wake of low interest...
KARACHI: Bank credit to the private sector rose 54 percent in almost 10 months of the current fiscal year of 2016/17, as financial institutions continued to lend firms in the wake of low interest rate environment and pickup in economic activity.
The central bank’s statistics showed on Friday that lending to businesses and households increased to Rs457.4 billion between July 1, 2016 and April 21, 2017 from Rs296.8 billion during the corresponding period of the last fiscal year.
The data showed that lending conditions in the country have been improving, providing one of the biggest stimulus to a more convincing upward economic trajectory.
Analysts said the figures on credit expansion and money creation were “pretty positive and encouraging” and the outcome of stable macroeconomic environment, better energy and security conditions, and the execution of mega projects in the country.
Higher development spending and investment in the China-Pakistan Economic Corridor (CPEC)-related projects increased appetite for bank financing in the construction and transport industries.
Moreover, a recovery in input prices in cotton and coal, kept the demand for working capital loans high in textile and cement sectors.
The State Bank of Pakistan (SBP) said that M2, a measure of broad money, rose to 13.55 percent in March 2017, mainly on the back of surge in the government and private sector borrowing. The measure is considered as an important indicator for inflation and growth.
The banks had adequate resources to meet the funding requirements of the private sector due to an increase in deposits. And, the government continued to repay its debt to commercial banks.
Though, the break up on loans to private businesses (flows during the period under review) not available yet, the previous trends revealed that an increase in bank credit came from working capital and fixed investment category.
Conventional banks took the lead in extending loans to the corporate sector followed by Islamic banks. Analysts see the banks would continue to lend more to the country’s businesses in the months ahead, as some of the big manufacturers in the cement and other sectors are gearing up for expansion. This could boost a demand for fixed investment loans.
Similarly, energy companies are expected to borrow working capital from banks to run their operations. Consumer financing is also likely to post upward growth. “We are confident that the private sector credit (bank advances) will stay robust following easy monetary conditions, sufficient availability of liquidity, ongoing activities under CPEC and positive economic outlook,” an economist said.
“However, any reversal in interest rates and slowdown in the large-scale manufacturing growth could endanger growth prospects and affect current momentum in the private credit offtake.”