close
Thursday December 02, 2021

Bank credit to private sector stays flat in July-Dec

January 10, 2021

KARACHI: Business lending at banks remained flat in almost six months of this fiscal year, despite central bank efforts to get the credit flowing via various concessionary financing facilities for quick economic recovery.

Credit to the private sector stood at Rs118.270 billion during July 1 to December 25, 2020, up 0.17 percent from a year earlier, latest figures from the State Bank of Pakistan (SBP) showed.

In the same period of last fiscal year, these loans were Rs118.069 billion.

Money supply M2 grew at 3.88 percent in July-December FY201, up from 3.67 percent in the corresponding period of last year, the SBP data showed.

Analysts said the latest data showed that private sector credit has seen a slow comeback.

“Lending to the private companies seems to have flattened,” a banking sector analyst said. “Demand for bank credit should have picked up at least moderately as the monetary policy environment was supportive” with policy rate slashed by 625 basis points to 7 percent, improved industrial activity, and SBP’s refinance schemes to mitigate the Covid-19 impact.

The SBP’s concessionary financing facilities, such as long-term financing facility and scheme to counter the impact of Covid, mainly temporary economic refinance facility provided some respite to the private sector. At the same time, disbursements under the export finance scheme and the Rozgar scheme helped firms pay off their debts to banks.

Private sector credit momentum remained weak since the beginning of FY2021. Even working capital loans from many sectors were retired due to muted economic activity and business closures as a result of coronavirus-induced lockdowns in the country.

Strong liquidity held by companies, higher sales tax refunds by the government, and the SBP’s economic relief package in the form of deferment and restructuring of loan repayments dragged down the demand for bank credit in the past three-four months of FY2021.

The Economic Refinance Facility (TERF) scheme has received strong response from businesses as requests for financings have crossed Rs500 billion mark, Topline Securities said in a report published this week.

The approved financing against the same has reached Rs278 billion, well above the initial threshold of Rs100 billion. Projects receiving financing were 346 as per December 31, 2020 data, out of 534 requests received, it said.

The companies from sectors like cement, steel, packaging, food, appliances, auto assemblers, auto vendors, chemical and textile amongst others have received approvals for their projects and would be expanding over the next 2-3 years, the report added.

“We believe the companies will benefit in two ways: (1) interest savings to the tune of 500-600bps and (2) greater economic viabilities of expansions,” it said.

The scheme was initially aimed to incentivise setting up of new industrial units; however, later Balancing Modernization and Replacement (BMR) of existing lines were also included in this scheme. The scheme is valid for projects, where letter of credits are established by March 31, 2021.