Private sector credit off-take surges 89 percent

KARACHI: Private sector credit off-take surged 89 percent to Rs310.56 billion in the seven months of the current fiscal year as soft interest rate encouraged businesses to seek bank loans. 

The State Bank of Pakistan (SBP) data showed on Wednesday that lending of banks to private sector amounted to Rs164.29 billion between July 1 and January 29 of the last fiscal year. 

An analyst at InvestCap Research said the surge in private sector credit was expected due to a significant fall in lending rates.

The lending rates cumulatively fell 142 basis points to 9.63 percent from 11.05 percent in 2015.

In December last year, banking spreads shrank nine basis points on month on month basis to 5.19 percent from 5.28 percent a month earlier.

“With a multi-decade low interest rate, shrinking banking spreads are no surprise,” the analyst said. “However, banks are trying to lure customers to increase their credit off-take numbers.” 

Analysts hoped that the materialisation of the China-Pakistan Economic Corridor (CPEC) projects will stimulate demand for bank credits.

An analyst at Topline Research said lower oil prices, planned improvements in energy supply, investment related to CPEC, buoyant construction activity and increased credit growth will bode well for the country’s economic growth.

The SBP, in its recently quarterly review, mentioned that the government estimated disbursements of Rs207 billion from China in the current fiscal year. Power and construction sectors will be the prime recipients, it said.  In the past years, the credit to private sector witnessed a declining trend due to substantial government borrowing from the commercial banks.

The private sector credit off-take was Rs371.37 billion in the fiscal year of 2013/14 and it fell to Rs208.72 billion in the following fiscal year.

The ease in government borrowing from banks also provided room to private sector to take loan for their working capital as well as for expansion in businesses.

The government borrowing from the banks fell 13 percent in July-Jan of the current fiscal year.

As per the central bank’s data, the federal government borrowed Rs751 billion during the first seven months of 2015/16 for budgetary financing as compared to Rs872.36 billion in the corresponding months of the last year.

In December, the weighted average deposit rates on outstanding deposits, including zero percent markup deposits, were recorded at 3.48 percent compared to deposit rate of 3.49 percent a month earlier.   The average rate on outstanding deposit for the last year fell to 4.07 percent as compared to 5.06 percent in the preceding year.