Bank loans to private sector rise 110.3pc

KARACHI: Bank loans to corporates rose 110.3 percent in more than 11 months of the outgoing fiscal year, the central bank’s data showed on Tuesday. It is a sign that economic activity is gaining momentum supported by low interest rates and improved business environment.

Bank advances to private businesses and consumers increased to Rs525.1 billion between July 1, 2016 and June 2, 2017 from Rs249.6 billion in the same period of the last fiscal year.

The State Bank of Pakistan figures revealed that conventional banks remained top with extending Rs305.4 billion in loans to firms followed by Islamic banks, which disbursed Rs132.9 billion. The Islamic banking branches of conventional banks lent Rs86.643 billion to the private borrowers during the period under review. It is pertinent to note that Islamic banking industry has been contributing significantly in growth in overall bank loans.

Though the latest numbers don’t show segment-wise break up of advances flows, the working capital loans, fixed investment and trade finance are supposed to lead higher private sector credit growth.

The previous trend indicated that off-take of fixed investment advances remained up, as corporate sector borrowed cash from the banks for the production of sugarcane. The other sectors such as automobiles, transportation, and electrical appliances witnessed an increase in demand for bank credit.  Many analysts expect private sector credit expansion in the next fiscal year due to favourable outlook on the back of stepped-up China Pakistan Economic Corridor (CPEC) projects, improved availability of energy, and lower cost of borrowing.

The central bank also sees bank loans to continue upsurge in times to come. “The growth momentum bank loans is likely to be supplemented by favourable macroeconomic conditions (ie low interest rates, strengthening aggregate demand and uptick of industrial activity), increase in wheat procurement operations and positive outlook,” the SBP said in its quarterly performance review of the banking sector published last week.   

However, the SBP warned that anticipated uptick of advances and investments due to shifts in government borrowing pattern may induce funding pressures and make it challenging for banks to meet the expected credit growth.

The SBP’s analysis showed that bank’s consumer finance portfolio witnessed growth largely on the back of auto finance followed by mortgages. The other categories like credit cards and personal finance also saw positive growth.