Private sector loans jump 21.6pc to Rs7.79tn in March

KARACHI: Bank loans to the private sector increased 21.6 percent year-on-year to Rs7.789 trillion in March on strong demand for working capital loans, the central bank data showed on Monday.

The private sector businesses obtained Rs6.714 trillion loans at the end of March, up 21 percent from a year earlier. An increase in bank lending to the private businesses is aided by a strong demand for working capital loans from the manufacturing sector, especially the producers of textiles.

Loans to the manufacturing sector rose to Rs4.337 trillion in March from Rs3.454 trillion in the same period a year earlier. Textile firms took Rs1.448 trillion loans from banks, compared with Rs1.126 trillion last year.

Banks extended Rs1.046 trillion credit to the food manufacturers in March, compared with loans of Rs893.7 billion a year ago. The economic activities are gaining momentum in the country. The industrial output is improving on surging global demand, easy credits, and to some extent, subsidised and smooth energy supplies to the industry.

The large-scale manufacturing expanded to 8.6 percent in February from 8.2 percent in the previous month. The higher input prices also raised demand for the working capital loans from the businesses.

Besides, refinancing schemes introduced by the State Bank of Pakistan (SBP) supported an increase in bank lending from the private borrowers. Housing finance and auto finance also helped rise in bank loans.

The higher interest rates are likely to impact the private sector credit demand to some extent in coming months. The SBP raised the markup rate for financing under the Export Finance Scheme by 2.5 percent to 5.5 percent following an increase in the policy rate.

The rating agency Moody’s maintained its B3 stable outlook for Pakistan’s banking sector supported by an expanding economy and sound finances held by banks.

“We continue to maintain a stable outlook for banking sector in Pakistan (B3 stable). This balances good economic momentum and growing financial inclusion that are boosting lending opportunities, against political uncertainty in the country and higher inflationary pressures due to Russia-Ukraine military conflict,” the agency said in its outlook last week.

Moody’s forecasts the country’s gross domestic product (GDP) to stay between three and four percent for fiscal year 2022, and between four and five percent for fiscal year 2023, with credit growth surpassing 12 percent.

Appreciating the banks for successfully navigating through Covid-19, it expects nonperforming loans (NPLs) to remain high, but stable at around nine percent of gross loans.

The agency expects profitability to rise moderately, with return on assets around 1 to 1.1 percent, supported by new business generation and gradually recovering net interest margins. Investment gains were likely to be lower, however.