Private sector credit offtake soars 196.2pc to Rs489.4bln

KARACHI: Bank lending to the private sector surged 196.2 percent in almost the entire course of fiscal year 2020/21 helped by an accommodative monetary policy environment, refinancing schemes introduced by the State Bank of Pakistan and signs of economic recovery.

Banks extended Rs489.4 billion in loans to private businesses from July 1, 2020 to June 18, 2021, compared with Rs165.2 billion in the same period of the last fiscal year, according to central bank figures issued on Tuesday.

Conventional banking branches disbursed Rs184.2 billion loans to the corporate sector. However, the businesses repaid Rs4.449 billion debt to the banks in the corresponding period of FY2020.

Islamic banks lent Rs134 billion to businesses. That compared with Rs33.815 billion a year ago.

Private sector credit offtake from the Islamic banking branches of conventional banks increased to Rs171.1 billion from Rs135.9 billion.

Credit to the private sector remained subdued during the first half of FY2021 due to low industrial production, surplus inventories, business closure amid coronavirus-related lockdowns and uncertainty about the pandemic trajectory. Even reduction in the cost of borrowing did not compel businesses to obtain fresh loans.

Most companies were retiring their working capital loans owing to the sales tax refunds by the government, debt relief measures provided by the SBP such as loan deferment and restructuring and availability of carry-over stocks.

However, bank advances picked up pace since the start of the second half of FY2021. The appetite for fixed investment loans started rising, driven by increase in economic activities.

The increase in the export-related activity in some sectors, utilisation of the SBP’s refinance facilities, especially Long Term Financing Facility (LTFF) and Temporary Economic Refinance Facility (TERF), led to the rise in demand for bank credit from businesses.

TERF is a concessionary refinance facility aimed at promoting investment both new and expansion and/or balancing, modernisation and replacement

TERF has shown significant growth over the last 12 months as reflected by an 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.

The SBP kept its policy rate unchanged at 7.0 percent for the fifth consecutive time on May 28. The outlook for the private sector credit looks positive in the upcoming fiscal year as the government wants to achieve inclusive and sustainable growth. It has set a 4.8 percent economic growth target for FY2022.