Private sector loans increase 4.3pc to Rs563.9bln in July-June

KARACHI: Credit growth in Pakistan’s private sector rose 4.25 percent to Rs563.9 billion between July 1, 2017 and June 8, 2018 as firms borrowed and invested to expand their businesses, the central bank data showed on Friday.

The branches of conventional banks extended Rs378 billion in loans during the period under review compared with Rs320.5 billion in the same period of last fiscal year.

However, Islamic banks lending growth fell to 45 percent to Rs72.650 billion during July 1 to June 8 FY18 compared with Rs132.307 billion a year earlier.

Private sector lending encompasses business and consumer loans.

The private businesses continue to borrow money from banks for the working capital and fixed investment requirements. Similarly, affordable rates and increasing disposal incomes also contributed to the expansion in consumer financing.

The State Bank of Pakistan hasn’t issued breakup of the private sector credit figures, but tracking the previous record, analysts said the upward growth in the corporate lending was due to higher manufacturing loans.

“The pace of the economic activity is increasing, which spurs credit flows and lifts growth,” an analyst said.

“The private loans are gaining momentum on the back of robust demand by the manufacturing sector, especially textiles, power and infrastructure-related sectors, while consumer credit was supported by higher demand of industrial products, especially of automobiles and consumer durables.”

The most powerful stimulant for the higher credit growth was the low interest rates.

However, the recent round of monetary policy tightening could drag the private sector credit offtake growth in the period ahead.

The SBP raised policy rate by 50 basis points to 6.5 percent last year.

The central bank is expected to increase policy rate by a further 75 basis points during rest of the current year to curb spiraling aggregate demand and imports of the country.

However, the SBP, in its last monetary policy statement, said the ongoing trend will continue in the next fiscal year.

“Barring the aforementioned risks associated with growth and recovering commodity prices, these trends are likely to persist in the coming months of FY19 as the private sector continues to adjust its funding needs in line with the requirements of the growing economy, especially related to CPEC (China-Pakistan Economic Corridor) investments,” it said.

The SBP’s data showed that broad money supply saw an expansion of 6.85 percent during July-January FY18 compared with 9.77 percent in the corresponding period of the last year.