Private sector borrowing up by 43.1pc in eight months

KARACHI: Private sector borrowing from banks jumped 43.1 percent to Rs357.2 billion in more than eight months of the current fiscal year due to lower interest rates together with mark-up subsidy to lockdown-affected businesses, the central bank’s data showed.

Banks disbursed Rs249.6 billion to the private businesses in the corresponding period a year earlier, according to the latest State Bank of Pakistan’s (SBP) data.

The SBP slashed interest rate by 625 basis points to 7 percent last year to support the coronavirus lockdown-ravaged economy. The unprecedented support was complemented by concessionary financing schemes.

Analysts said the private sector credit is likely to maintain its upward trend in the coming months due to recovery in economic growth, improvement in the business confidence and expected stability in the interest rates at least during this fiscal year.

However, the expiration of temporary economic refinance facility and possible restrictions amid resurging coronavirus cases may have some implications on private sector credit offtake, they said. The scheme will expire on March 31.

Conventional banking branches disbursed Rs174 billion loans to the private sector between July 1, 2020 and March 12, 2021, compared with Rs83.6 billion a year earlier.

The private sector credit offtake from the Islamic banks rose to Rs71.6 billion from Rs50.5 billion. The Islamic banking branches of conventional banks disbursed Rs111.6 billion loans to the private sector compared with Rs115.4 billion a year earlier.

The private sector credit saw a declining trend in the previous months due to retirement of working capital loans. Now it has resumed its expansionary trend owing to increase in fixed investment and consumer loans amid soft interest rates as well as SBP’s subsidised refinancing schemes, especially long term financing facility and temporary economic refinance facility.

Temporary economic refinance facility is providing financing at low rates for investment, and is now seeing healthy pick-up as the economy shows signs of revival. Temporary economic refinance facility has recorded a growth of 13 percent on a weekly basis to Rs543 billion on March 4 from Rs481 billion on February 25, showing a recovery in the investment and the economic activities. The central bank slightly upgraded its economic growth forecast for the current fiscal year at around 3 percent based on hopes the manufacturing sector would continue to perform well, but warned of the escalating risk to the outlook as resurgence in infection cases threatened to derail fragile recovery.

Large-scale manufacturing grew further by 10.8 percent year-on-year in December 2020 and 9.1 percent in January 2021. Through the first seven months of FY21, large scale manufacturing has grown by 7.9 percent, compared to a contraction of 3.2 percent during the same period last year, the SBP’s said last week.