KARACHI, Dec 14: The current year which is about to end, witnesses a sharp decline in advance to deposit ratio (ADR) reaching a three-year low in the first 10 months while reflecting slow outflow of credit from banks to its destinations.

During the year, the flow of credit also changed its focus from traditional textile sector to diversified sectors, reflecting growth in different segments of economy.

The State Bank reported that the ADR fell to 71 per cent in August and September 2007 which was the lowest in three years from 80 per cent in January 2007.

The official data also showed that during July-October 2007, the ADR fell to 74 per cent which was lowest in three-year average ADRs down from 78 per cent in January-October 2006 and 75 per cent in January-October 2005.

The new trend was the direct outcome of tight monetary policy which slowed down credit outflow from banks to borrowers, especially the private sector.

Credit off-take during the first five months of the fiscal 2007-08 declined by 10 per cent to Rs133.8 billion, compared to Rs157.7 billion during the corresponding period of last year.

This slowdown of ADR also reflects in the borrowings of the textile sector which is yet to come out from last year’s poor performance. However, at the same time the banks found another opening to lend more than the traditional sectors, like textile.

The State Bank’s tight monetary policy, slow response of the textile sector and fast growing non-performing loans (NPLs) forced banks for a cautious approach.

Bankers said the banks invested heavily in government papers to avoid increasing volume of NPLs.

Though the ADR is declining, the total advances of the banking sector during the first 10 months grew by 10 per cent compared to last 10 months of the previous year. However, the deposit showed much higher growth of 22 per cent during the same period.The focus of advances from textile sector shifted towards consumer financing, including real estate and automobile loans. Advances were also flowing towards power generation.

A comparative study showed that from September 2006 to September 2007 credit concentration of the banking sector dropped to 20.54 per cent from 22.82 per cent.

Bankers said the electricity, water and construction were the main sectors which received major chunk of money.

They said in future these sectors would replace textile sector in terms of borrowings from the banks.