July 18, 2007	Wednesday	Rajab 02, 1428

KARACHI, July 17: Despite huge liquidity in the banking system, credit to private sector remained much lower than last year and was 25 per cent less than the target set for 2006-07.

Official figures released on Tuesday showed that the private sector consumed Rs291 billion between July and June 23, 2007. The slow credit growth indicates slow activity in the private sector. The credit flow to the private sector was 17 per cent less than the previous year.

Bankers said the main borrower, textile sector, limited its requirement which is partially reflected from the slow export growth of the biggest manufacturing sector of the country.

Bankers said textile sector borrowings for 2006-07 remained 20 per cent less than the previous year while banks were eager to increase loaning to corporate sector.

The textile sector has been asking for more incentives to improve its performance. The textile sector wants cheaper money to bring down cost of production which may help the sector to increase exports in the year 2007-08.

However, the textile industry has been the biggest beneficiary of subsidised loans from banks and a record Rs360 billion were provided under the export finance scheme during 2006-07.

The excess liquidity floating in the banking system mainly because of huge inflow of foreign exchange and record remittances made it difficult for the banks to use them at best returns.

“Banks will invest more on risk-free treasury bills during the year while personal loans and consumer loans will get more shares during the current fiscal,” said Noman Ahmed, a local banker.

He said that the State Bank has already started floating huge amount of treasury bills and more are expected to come which would help both banks and the money market to remain stable.

“There is a little hope that the textile sector will increase their consumption this year as the sector is trying to get maximum benefit from the subsidised loans under the refinance scheme,” said another banker.

He said the economic growth during 2006-07 was the real reflection of growth in agriculture sector, banking and communications during the previous fiscal while the manufacturing sector did not show strength which was a reason of low credit flows towards the private sector.

Bankers said the credit target for the year 2007-08 would be less than the current year or would be equal to it as the demand for credit was not very high.

They said the new fiscal may see some growth but it would not cross the target of Rs390 billion.

The monetary policy, which is expected at the end of this month, would reveal the monetary situation and that would set the new target for current fiscal for private sector.

The State Bank has already said that it would follow the tight monetary policy for another six months from July to December 2007.

In the presence of huge liquidity and a direct outcome of record foreign inflows, banks are expecting no change in the monetary policy.