Loans to private sector businesses rise 21 percent to Rs4.801 trillion

KARACHI: Outstanding loans to private sector businesses amounted to Rs4.801 trillion at the end of October, 2018, which was 21 percent up from the same period a year ago, the central bank data showed on Tuesday.

The uptick in economic activity and low financing cost increased the demand for bank lending from the private corporates in the period under review.

The country achieved a 13-year high real gross domestic product growth rate of 5.8 percent in the last fiscal year, as industries increasingly resorted towards bank borrowings to finance their expenses. A large number of sectors, especially textiles availed working capital and fixed investment loans to meet their financial requirements.

Low interest rate environment, increased production capacities, and buoyant industrial activities helped boost the private sector credit demand. Banks’ inclination for high yielding earning assets in the wake of shifting pattern of government borrowing from commercial banks to the central bank contributed to rising financing demand.

October loan data revealed that a larger part of the loans to private businesses were availed by the manufacturing sector, within which the most active borrowers were the producers of textiles.

Bank outstanding loans to manufacturing sector increased to Rs2.832 trillion at the end of October from Rs2.298 trillion in the corresponding period of last year, the State Bank of Pakistan (SBP) data revealed. Textile companies obtained Rs952.2 billion from financial institutions, compared with Rs753.7 billion a year earlier.

The SBP’s subsidised financing schemes for export-oriented sectors played an important role in encouraging capacity expansion activities in the textile sector.

Analysts say encouraging October loan data points to further increase in the economy in the coming months. However, tough credit conditions due to recent tightening in monetary policy could have negative implications for the private sector borrowings.

“The room for further policy tightening is still there as the central bank remains concerned about rising inflation and higher current account and budget deficit,” said an analyst. “The IMF has also linked the new bailout package with increase in interest rates.”

The central bank increased its policy rate by a cumulative 275 basis points since January, 2018.

The SBP, in its, half-yearly performance of the banking sector for the period ended June 30, 2018 said that private sector advances were likely to increase in the second half of this year due to seasonal factors, capacity enhancement, and boost in investors’ confidence after peaceful political transition.

“Growing inflationary pressures due to rising aggregate demand and expected bullish trend in global oil prices may translate into higher demand for working capital financing needs. However, increase in SBP policy rate and rising global trade disputes, could moderate the demand for advances,” it added.

The SBP and international lending and rating agencies have forecasted slowdown in economy in the current fiscal year.

The SBP projects the real GDP growth in the range of 4.7 to 5.2 percent for FY19 against the government target of 6.2 percent.

The GDP growth will slow over the coming quarters and clock in at 5.4 percent during the ongoing fiscal year from 5.7 percent last year, according to a latest report published by Fitch Solutions’ Analysis on Pakistan’s economy.