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KARACHI, Oct 13: The banking system advanced an all-time-high credit of Rs167.7 billion to the private sector in the fiscal year July-June 2002-03, according to the final figures released by the State Bank. This was more than three times the revised target of Rs50.2 billion and 78 per cent higher than the original target of Rs94.6 billion.
The figures updated on the SBP website show that the private sector got Rs163.2 billion from commercial banks and Rs4.5 billion from specialized banks. The central bank finalizes figures on the government borrowing and private sector credit during a full fiscal year after a couple of months when its own balance sheet for that fiscal year is ready.
But it keeps updating these figures on weekly basis with much lesser lag of time. This explains the difference that one notices in the final figures of government borrowing and private sector credit and those relating to the last week of the outgoing year.
On August 7, the State Bank had reported total private sector at Rs153.5 billion at the end of the last week of the fiscal 2003.
Policy makers and top bankers have been on record saying that the private sector credit shot up in the last fiscal year chiefly due to availability of excess money in the banking system that resulted in lowering interest rates.
The banking system wallowed in excess liquidity in the last fiscal year chiefly because home remittances shot up to $4.2 billion from $2.4 billion a year ago — pumping into the system an additional rupee liquidity of more than Rs100 billion. This — supplemented by well-targeted moves by the State Bank — resulted in lowering of interest rates: the weighted average lending rate of all banks combined fell to 7.58 per cent at the end of the fiscal 2003 from 13.12 per cent yearly average seen in the fiscal 3002. The benchmark six-month treasury bills rate also fell 4.63 percentage points during the last fiscal year leading banks to offer cheaper credit to the private sector.
Senior bankers say the private sector credit growth remained unprecedentedly high in the last fiscal year also because many borrowers did not retire seasonal credit on time because of the low interest rate. They say had credit retirement been normal as ever the private sector credit volume at the end of the last fiscal year should not have been as high as Rs167.7 billion. This gives birth to a very critical question: Will the growth in the private sector credit during this fiscal year be lower than in the last year? Most bankers say it will.
THIS YEAR OUTLOOK: “The pace of growth may slow down not only because of lower credit retirement last year, but also because the interest rates have bottomed out,” said treasurer of a big local bank.
That is why the private sector credit target has been set at Rs85 billion for this fiscal year. But the National Credit Consultative Council that chalks out annual credit plan says it is an indicative target and that the private sector “can avail as much credit as required,” as was the case in the last fiscal year.
Senior bankers say since the banking system is still wallowing in excess liquidity a big challenge facing the policy makers as well as the banks is to create demand for the private sector credit.
FOUR AREAS: That is why the State Bank has identified four key areas for the banks to explore aggressively for credit marketing: these are (i) agriculture (ii) housing finance (ii) small and medium enterprises and (iv) consumer finance. The SBP and the government have created an enabling environment for the banks to increase lending in these areas. The State Bank lately introduced three-year revolving credit policy for agricultural loaning to ensure higher offtake of agricultural credit and the government announced to introduce 15-year and 20-year Pakistan Investment Bonds to lure banks into long-term mortgage financing in the housing sector. The central bank has also been insisting upon the banks to make more loans to SMEs and allowed them to enter into leasing business to employ surplus funds in consumer financing on the one hand — and enable the trade and industry to produce and sell more goods.
Whether the policy to enable banks to make more loans in these areas gets the desired result will depend largely on how efficiently banks take up the challenge of reviving the economy — and increase their own profits in the process. Banks have taken a hit on their interest-based incomes because of low interest rates and efficient credit marketing and balance sheet management is a must for them to see that their margins rise. Senior bankers say their ability to disburse more credit at marked-based price also depends on the possible change in the monetary policy. “If the policy remains stable with only occasional upward adjustment in T-bills and PIBs rates, etc., then the banks may perform smartly,” says head of a foreign bank. “But if the policy is tightened at this stage then targeted credit marketing will become difficult.”
