Private sector’s credit offtake surges 43pc in 10 months

KARACHI: Banks disbursed Rs454.5 billion in loans to private businesses during the first 10 months of the current fiscal year, up around 43 percent as the cost of borrowing has been reduced to spur economic growth, the central bank’s latest data showed.

Bank disbursed Rs318.4 billion in the corresponding period of last fiscal year, according to the State Bank of Pakistan (SBP). The data revealed that conventional banking branches disbursed Rs215.4 billion loans to the private sector in the period under review, compared with R145.6 billion during last year.

The private sector credit offtake from the Islamic banks rose to Rs103.7 billion from Rs57.4 billion. The Islamic banking branches of conventional banks disbursed Rs135.3 billion loans to the private sector in July- April FY2021, compared with Rs115.4 billion a year earlier.

The SBP slashed policy rate by 625 basis points last year. The policy rate, currently, hovers at 7 percent.

Analysts said the private sector credit is likely to sustain its expansionary trend in the coming months owing to recovery in economic growth, vaccine rollouts and expected status quo in the interest rates during the current fiscal year.

However, the ending of concessionary financing and any reversal in the recovery process as a result of the worsening third Covid-19 wave may affect advances growth, they said.

The private sector credit is gaining momentum due to the low interest rate environment and the SBP’s subsidised refinancing schemes, especially long-term financing facility (LTFF) and temporary economic refinance facility (TERF). These schemes have supported improvement in the economic and investment activities in the country.

TERF is providing financing at low rates for investment, and is now seeing healthy pick-up as the economy shows signs of revival. This scheme has matured on March, 31 2021.

TERF has shown significant growth over the last 12 months as reflected by increase in requested amount from Rs36.1 billion by end April 2020 to Rs690 billion at maturity while over the same period approved financing has reached to Rs435.7 billion from Rs0.5 billion.

Large-scale manufacturing grew 22.39 percent year-on-year in March. The industrial output decreased 7.66 when compared with February.

The central bank slightly upgraded its economic growth forecast for the current fiscal year at around 3 percent compared to 0.4 percent contraction during the last fiscal year. Government expects growth at 3 percent in the current fiscal year. The International Monetary Fund projects 1.5 percent GDP growth for FY2021, while the World Bank expects a 1.3 percent economic growth.