KARACHI, May 17: Commercial banks extended record Rs366.326 billion loans to the private sector during the first 10 months of the current fiscal year against Rs363.747 billion the same period last year, latest data of State Bank showed on Wednesday.
The central bank has been making strong resistance against the heated economy to bring inflation under control. The tight monetary policy prevailed through out the period under review but the massive outflow of money from the commercial banks thrash the efforts of the SBP.
The government has been against any kind of restriction to the flow of credits towards the private sector as it was not ready to compromise over the economic growth.
However, despite the high supply of credits, the macroeconomic indicators suggest that the economic growth would fall by at least 2 per cent compared to the last year’s growth of 8.4 per cent.
Analysts said that though the monetary growth remained within the target, the tight monetary policy effectively failed to bring down the higher flow of credit to the private sector.
The higher growth of credits to the private sector did not allow the inflation to come down and the next year plan to bring it down to 6 per cent looks difficult.
The commercial banks were pursuing aggressive marketing strategy for agriculture sector which was evident from higher supply of farm loans by them and lesser credits by the Zari Taraqqiaty Bank (ZTBL). The banks were not only supplying credits for agriculture input like seeds, fertilisers and machinery but they were also financing storage projects.
“The economic mangers were expecting that the higher interest rates would curtail the lending but the credit off-take by the private sector proved it wrong,” said Salman Jafrey, researcher and analyst at the JS and Company.
High credit supply is also obvious from the record advance-to-deposit ratio of the banks which reached 77 per cent. Banks have been earning most of their income through interests and are following a policy to supply credits as much as possible.
“The risk factor involve in the rigorous lending to private sector is yet to appear but it will appear in one or two years,” said S.S. Iqbal, a banker. He said that banks were not showing cautious approach for lending which could create a situation against the banking. He was of the view that banks ignored the risk factor.
The record supply of credit indicates a race for more income as the banks have been witnessing 99 per cent growth in their profits for the last couple of years.
“Inflation cannot be controlled without cutting government spending while the oil prices and food supply are other major factors behind the high inflation,” he said.
Most of the analysts said that the higher inflation was due to high spending by the government which took shelter behind the incident of earthquake of October 8, 2005.
