Loans to private sector rise 22 percent in June

KARACHI: Bank loans to the private sector increased 22 percent year-on-year to Rs8.070 trillion in May, the central bank data showed on Friday.

The private sector businesses took Rs6.928 trillion loans at the end of June, up 21.3 percent from a year earlier.

The increase in the demand for the private sector credit is due to increasing economic activities in the country. The higher input prices also raised the demand for the working capital loans from the businesses. Besides, the refinancing schemes introduced by the State Bank of Pakistan supported an increase in the bank lending from the private borrowers.

Housing finance and auto finance also helped rise in bank loans. An increase in bank lending to the private businesses is aided by a strong demand for the working capital loans from the manufacturing sector, especially textile producers.

Loans to the manufacturing sector rose to Rs4.451 trillion in June from Rs3.548 trillion in the same month a year earlier. Textile firms took Rs1.477 trillion loans from banks, compared with Rs1.114 trillion last year.

Banks extended Rs1.034 trillion credit to the food manufacturers in June, compared with the loans of Rs897.7 billion a year ago. Auto financing rose 19.4 percent to Rs368 billion as of June.

Advance to deposit ratio (ADR) ratio stood at 48 percent in June up by 228 basis points YoY and declined by 344 bps month-on-month. Investment to deposit ratio (IDR) increased by 695 bps to clock-in at 76 percent in June.

Analysts said the rise in ADR is fueled by private sector loan growth over the period, especially due to Temporary Economic Refinance Facility (TERF), housing finance etc. Disbursements have also increased in case of working capital and commodity financing.

The investment to deposit ratio (IDR) will also remain on a higher side this year.

Given the current economic situation, all additional liquidity is expected to be diverted towards government securities, as history suggests that banks have not taken the risk of losing their principal amount in a higher interest rates environment.Investments appear to be parked in shorter maturities, aligning the banking sector with the cycle of interest rates. Currently, industry’s IDR is hovering at 69 percent (primarily on the back of higher repo borrowings).