Private sector retires Rs14.97bln in over 5 months

KARACHI: Private sector paid off Rs14.979 billion to banks in over five months of this fiscal year as businesses with ample liquidity on hand, owing to pandemic-led contraction, opted to ease the debt burden and hold off new borrowing, latest numbers showed on Tuesday.

According to State Bank of Pakistan (SBP), corporate entities retired this amount during July 1, 2020 to December 4, 2020, while the loan amount cleared in the same period of the last fiscal year was Rs79.22 billion.

The credit offtake usually gains momentum in the second quarter of each year. However, the corporations still look unwilling to make fresh investments, despite a desirable policy rate in place. This trend indicates the businesses remain uncertain about the economic recovery prospects of the country due to the second wave of the virus.

The growth in money supply slowed down as M2 grew 1.80 percent during July 01-December 04, FY2021, compared with 1.90 percent in the same period last year.

Analysts said the credit retirement remained in place despite the relief measures announced by the SBP, for the households and businesses in the form of principal payment holidays along with relaxation in regulatory criteria for restructuring/rescheduling of loans. The later facility was for those borrowers whose financial condition required relief beyond extension of principal repayment for one year.

Moreover, the SBP introduced the “Rozgar Scheme” to provide concessionary loans to cover the salary component of firms’ expenditures. The SBP also rolled out the Temporary Economic Refinance Facility (TERF) and the Refinance Facility for Combating COVID-19 to incentivise fresh investment activity and cover health-related expenditures, respectively.

Through these schemes, some recovery in credit offtake was expected.

The SBP, in November monetary policy statement said overall financial conditions remain appropriately accommodative, with the real policy rate remaining in slightly negative territory on a forward-looking basis.

While private sector credit growth is moderate on a year-on-year basis, its month-on-month momentum was reverting to pre-COVID trends.

“With higher risk aversion on the part of commercial banks, the expansion in credit to the private sector has been supported by SBP’s temporary and targeted refinance schemes introduced in the aftermath of the COVID-19 shock,” the central bank had said in its statement.