KARACHI, Nov 2: Both advances and deposits growth of banks remained substantially low during the last nine months of the current calendar year which further reduced the credit penetration of the country.
High credit flows to private sector has been a backbone for the economic growth achieved in the last couple of years. These years witnessed record level of credit lending, however, the rising inflation compelled the policymakers to make credit costlier.
In the nine months of calendar year 2006 advances of the banking sector grew by nine per cent compared to 19 per cent and 13 per cent during the corresponding period of 2004 and 2005 respectively.
“This is the impact of the tight monetary policy being followed by the State Bank,” said Muhammad Imran, researcher at JS and Company.
He said the inflation was the prime reason which compelled the State Bank to reduce the high credit inflows towards the private sector.
Gross advances of the banking sector reached Rs2.2 trillion at the end of September 2006. After adjusting these advances against provision, net advances of the industry arrived at Rs2.1 trillion as of Sept 30, 2006.
“The slower growth in advances can be attributed to the tighter monetary stance of central bank. But I think lower credit demand by textile sector and other manufacturing units is also a reason behind this,” said Imran.
The high credit growth has been a source of concern for both the government and the State Bank and the issue is being addressed through tightening of credit flows.
However, some researchers believe that it was the credit demand which fell resulting in low credit growth.
“This is the reflection of structural imbalances in our economy. Credit flows towards the power sector, textile and fertiliser have slowed down and the industrial growth has been declining,” said Faisal Shaji, researcher at Capital One brokerage house.
He said the decision about gas supply to power sector, textile and fertilisers is yet to be taken; in fact, gas is not in enough quantity to supply in these sectors. This situation has slowed credit flows towards these large sectors.
The slow credit growth resulted in lowering of credit penetration which has reached 25 per cent of GDP.
In India the credit penetration was 44 per cent, USA 250 per cent, UK 150 per cent, China 160 per cent, Malaysia 145 per cent and Indonesia 65 per cent.
The deposit growth of the banking sector has also declined compared to the previous years and the bankers and researchers believe that this was another reason for slower advances.
Deposits of the industry reached Rs2.8 trillion with a nominal growth of 6 per cent in nine months of the current year. In the corresponding period of 2004 and 2005 deposits of the industry showed an increase of 16pc and 12pc respectively.
“We think monetary tightening is also the reason behind this and a slower growth in advances was the main reason behind low growth of deposits,” said Imran. In the third quarter of this year the deposits growth was only one per cent.
