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Thursday March 28, 2024

Private sector credit falls 26 percent in July-Jan

By Erum Zaidi
January 23, 2018

KARACHI: Private sector credit sharply fell 26 percent to Rs201 billion during the past seven months as there was a muted corporate demand for loans despite availability of low-cost funds.

The State Bank of Pakistan’s (SBP) data showed on Monday that banks extended Rs201.2 billion in loans to private sector between July 1, 2017 and January 12, 2018 as compared to Rs273.4 billion in the corresponding period a year ago.

Analysts are optimistic that bank loans look to pick up in the coming months as commercial banks are eager to provide credit support to the economy. “Improvement in liquidity conditions, low inflation and growing confidence could also help increase in the growth of private sector credit this fiscal year,” an analyst said.

The State Bank’s data showed that conventional banking branches disbursed Rs129.8 billion to various private businesses in July-January FY2018. Islamic banking branches of conventional banks disbursed Rs56.48 billion. Islamic banks extended Rs14.88 billion in loans to private sector in the period under review. SBP data further showed that banks’ outstanding loans to private businesses rose 15 percent year-on-year to Rs4.214 trillion in December 2017.

Money supply growth fell to 1.86 percent in the July-January period from 3.51 percent a year ago, indicating that banks extended fewer loans during the period under review. Analysts, who are bullish on credit offtake, believed that the SBP would keep policy rate unchanged at 5.75 percent in the upcoming monetary policy review meeting scheduled later this month.

“Taking cue from the recent monetary policy meeting minutes and observing the prevailing price levels we expect the monetary policy committee (MPC) of the SBP to maintain status quo in interest rates in the upcoming monetary policy meeting,” an analyst at Alfalah Securities said. He said though the MPC acknowledged weakness in external sector in its last two meetings it kept discount rate unchanged due to its positive implications on economic growth rate and below target inflation. “Overall, we slightly alter our interest rate hike expectation where we now see tightening to begin from May 2018 compared to July 2018,” he added.