Consumer credit increases 4.71pc

KARACHI: Consumer lending at the end of September 2017 rose 4.71 percent from June, the State Bank of Pakistan (SBP) figures showed on Thursday, helped by expansion in auto, housing and personal loans.

Outstanding stock of consumer loans of the banks amounted to Rs408 billion at the end of September, up from Rs390 billion by end of June this year.

The SBP’s latest data revealed rise in consumer financing continued in September that stands in response to falling interest rates and the eagerness of banks to offset the slowdown in their earnings.

Analysts said banks have been increasing their exposure towards unsecured consumer loans in an attempt to maximise returns that have been under pressure due to low interest rate environment in the country.

“Low interest rates along with banks’ need for higher returns have improved access to credit. The introduction of new consumer products, especially new models of passenger cars and gaining traction in ride-hailing services have contributed to increase in auto loans,” said an analyst.

The policy rate has hovered at 5.75 percent since May 2016.

Car financing was strong in September, up 7.43 percent to Rs162 billion. Mortgage loan growth also picked up slightly, according to the central bank figures.

Housing finance rose to Rs67 billion from Rs60 billion in June.

However, personal loans inched up to Rs148 billion in September, compared with Rs147 billion in June.

Credit card loans stood at Rs32 billion, compared with Rs31 billion.   The interesting aspect of retail banking is a rising consumer appeal for Shariah-complaint financial products. The share of Islamic banks in the areas of housing and car financing is going up.      

Details from the SBP’s latest report for FY17 published last week showed that the share of Islamic banking institutions in car financing has increased to 43.1 percent at end FY17. Their penetration in housing finance is even more encouraging and they now dominate this segment with 60.9 percent share in the overall portfolio of the banking industry.

The central bank, however, seems frustrated at the slow penetration of private credit in Pakistan.   The penetration and depth of private credit in Pakistan is still low relative to comparative countries as the average credit-to-GDP ratio stands at just 16 percent from 2010 to 2016.

“Ultimately, Pakistan needs to continue formulating and tweaking its own customised mix of policies based on the country’s distinct comparative advantages and limitations,” the SBP said in a report.

“Moreover, it must be borne in mind that achieving a higher credit-to-GDP ratio is just a means to an end: the prime objective is to expand access to finance so that all deserving entrepreneurs and households can avail credit on equitable terms,” the report said.

“This would empower them to expand their businesses and improve their living standards, and simultaneously help the country make progress against its development agenda. Therefore, the concept of financial inclusion has appeared in mainstream policy thinking,” it added.

The SBP’s data showed that credit to private sector, or lending to businesses increased to Rs4.495 trillion in September from Rs4.490 trillion in June.