Banks sanction Rs263.8bln in 9 months under TERF

KARACHI: Banks have approved financing for new projects worth Rs263.8 billion under Temporary Economic Refinance Facility (TERF) by December 24, a giant leap from Rs0.5 billion by end April, hinting recovery in investment and economic activities, data showed on Friday.

“TERF has shown significant growth over the last nine months as reflected by increase in requested amount from Rs36.1 billion by end April 2020 to Rs557.6 billion by December 24, 2020 while over the same period approved financing has reached to Rs263.8 billion from Rs0.5 billion,” a State Bank of Pakistan (SBP) report on TERF performance posted on its website said. The SBP rolled out this scheme in March 2020 to help businesses fund their investment plans and expand projects in the tough time of pandemic.

TERF is a concessionary refinance facility aimed at promoting investment both new and expansion and/or Balancing, Modernization and Replacement (BMR), defines the SBP.

Financing under the facility is available through banks and development finance institutions to all sectors across the board except power sector where SBP’s refinance facility for renewable energy projects already exists.

Under the scheme, loans up to Rs5 billion are available per project, and are repayable on quarterly and half yearly basis.

The SBP reduced the maximum end user rate from 7 percent to 5 percent on July 08, 2020 resulting in bringing significant increase in number as well as amount of requests in following months.

Analysts said the TERF should drive a strong rebound in investment and help foster economic activity and increase industrial output. If the new and BMR loans continued to rise, it would allow the economy to regain momentum, they added. Banks are also participating in this lending initiative as private sector credit offtake remains muted, as businesses with liquidity in hand prefered to repay their loans amid Covid-related uncertainty.

“Given the fact that the TERF is geared towards supporting investment activities in the country, the uptick in its utilisation is encouraging from a structural viewpoint as well,” the SBP in its annual report on the state of economy for fiscal year 2019-20 said.

Pakistan has historically been a consumption-oriented economy, which resulted in unsustainable growth spurts and investment rates not only remaining lower than most Emerging Markets and Developing Economies (EMDEs), but also declining in absolute terms over the past few decades, it explained.

“In this regard, a strong response to incentive schemes such as TERF bodes well for the future economic trajectory, as capital formation activities would help enhance and potentially diversify the output capacity of Pakistan going forward,” the central bank said in its report.