Loans to private sector rise 4.9pc to Rs8.4tr

KARACHI: The banks’ outstanding credit to the private sector increased by 4.9 per cent year-on-year to Rs8.412 trillion at the end of August, reflecting a rise in demand brought on by economic stabilisation and lower borrowing costs.

These loans rose by 2.1 per cent on a month-on-month basis.

As of the end of August, private sector businesses received Rs7.24 trillion in loans from banks, up 5.2 per cent from the same period last year, according to the State Bank of Pakistan’s most recent figures, referring to the outstanding position of the loans. Bank lending to private businesses increased by 2.3 per cent on month-on-month.

Credit demand began to increase in the last fiscal year, ending June 30, 2024, after being low during the fiscal year 2023. The rise in credit to the private sector can be explained by a modest uptick in economic activity as well as ongoing cost pressures in certain industries. This led to the need for working capital loans from companies. Private-sector credit grew by 4.0 per cent in FY24, compared with 2.3 per cent in FY23.

Nevertheless, the main causes of the subdued credit demand in FY24 remained to be the tight monetary policy and significant financial requirements from domestic sources. Commercial banks showed a strong inclination towards risk-free investments in government securities, drawn by the government’s substantial increase in borrowing demand combined with rising interest rates.

Loans to the manufacturing sector rose to Rs4.714 trillion as of August from Rs4.424 trillion in the same period a year earlier. Textile firms took Rs1.633 trillion in loans from banks, compared with Rs1.658 trillion last year.

Banks extended Rs1.032 trillion credit to food manufacturers at the end of August, compared with the loans of Rs907.9 billion a year ago.

According to SBP data, consumer financing decreased annually to Rs809 billion as of August, a decline of 3.6 per cent. On a monthly basis, however, consumer loans rose by 0.7 per cent.

Macroeconomic conditions in the country improved in FY24, according to the State Bank of Pakistan’s Governor’s Annual Report for the fiscal year 2024. After two difficult years, inflation turned the corner thanks to ongoing tight monetary policy, fiscal austerity, and generally favourable global economic conditions.

“Inflation is projected to remain significantly contained in FY25, particularly due to the lagged impact of tight monetary policy stance and continued fiscal consolidation,” the report said.

Headline inflation has already been on a downward trajectory since June 2023 falling to 6.9 per cent in September 2024; global commodity prices continue to be low; whereas core inflation is also softening, it noted.

The SBP reduced the policy rate by 350bps in July and September 2024, taking the cumulative reduction to 450bps since June 2024 due to a persistent decline in inflation.