Lending to the private sector is up 235% to Rs.786 crore

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KARACHI: Bank lending to the private sector surged 235 percent in nearly the first seven months of the current fiscal year as companies increased borrowing to keep facilities afloat and fund new projects amid the post-pandemic economic recovery.

Banks have lent Rs 786 crore to corporate borrowers between July 1, 2021 and Jan 21, 2022, compared with Rs 235 crore in the corresponding period last fiscal year, the central bank’s latest figures on monetary aggregates on Wednesday showed.

A more detailed breakdown of the credit data showed that the various branches of commercial banks disbursed loans worth Rs 520 crore to private companies, compared with Rs 118 crore in the same period last year.

Islamic banks have lent 104 billion rupees to the private sector in the seven months to January. That compared to Rs49 billion a year earlier. Business loans from Islamic banking branches of conventional banks increased to Rs. 162 billion from Rs. 68 billion.

The figures reflect growing demand and availability of bank loans due to a recovery in economic activity, as well as the impact of higher input prices, which increased demand for working capital. Also, the State Bank of Pakistan (SBP) has urged banks to increase lending to businesses and consumers to keep the economy afloat during the pandemic.

The SBP said in its latest policy statement that private sector credit growth is largely being driven by increased demand for working capital loans, particularly from the rice, textile, oil and steel industries.

Samiullah Tariq, head of research at Pak-Kuwait Investment Company, said the uptick in private sector borrowing was “due to rising demand”. “The general growth in economic activity, including the increase in exports/imports, the increase in commodity prices, the increase in fixed investment, new projects financed by the long-term financing facility and the temporary economic refinancing facility, are now leading to higher demand for working capital” said Tariq

“Cotton prices are at an all-time high in local currency terms, oil prices are at an all-time high.” The SBP introduced TERF in 2020 as part of its economic support measures for Covid-19. It is a concessional refinancing facility aimed at promoting both new and expansion and/or compensatory, modernization and replacement investments.

In addition, housing finance and auto financing led to an increase in bank loans.

In July 2020, the SBP also asked banks to increase their housing and mortgage lending portfolios to at least 5 percent of their private sector advances by December 2021, lest they face penalties. This coupled with higher disbursements under the Mera Pakistan Mera Ghar program has also boosted overall construction and housing finance. The SBP recently raised the mandatory target for home and construction lending to 7 percent by December 2022.

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