KARACHI, March 7: Growth in banks advances fell by 60 per cent in 2007 compared to average growth of last four years reflecting slowdown in economy.
The banks did earn profits during the period under review but sill much lower than the previous four years. Bankers believe that the slower advances growth hurt profitability of the entire banking sector.
During 2007, the banking sector’s advances growth of 17 per cent was lower than the last 4-year average of 28 per cent.
Bankers and analysts said the lower advances growth was a sign of slower economic growth and would be reflected in the final assessment of the economy at the end of the current fiscal year on June 30.
There was a visible effort by the State Bank of Pakistan to put a cork on fast flow of credit, which increases inflation and put the SBP into a difficult situation to control it. However, the average 28 per cent advances growth during the last four years proved a catalyst for the economic growth reaching up to 7 per cent.
The lower advances growth has further declined the country’s position among the regional developing countries.
In the regional context, Pakistani banking sector is one of the highly under- penetrated sectors when it comes to advances.
“Credit penetration in Pakistan is calculated at 28 per cent of the GDP, which is one of the lowest in emerging and Asian countries like India, China, Turkey, South Africa, Malaysia, Korea and Brazil,” said Mohammad Imran, head of research at First Capital Equity.
Targeting inflation through credit crunch has been a part of the State Bank’s policy but the inflation kept on moving up mainly on account of high oil and food prices. At the same time, the slower penetration of credit in the economy has slowed down the economic activity.
“The slower credit flow means less flow of fuel to the economic engine,” said another analyst. He said the current economic growth was only bec ause of extra ordinary growth in few sectors like telecommunications, oil exploration and oil marketing companies, auto sector and the large services sector.
The growth in real estate and construction sector was the direct outcome of the record high inflows of the remittances sent by the overseas Pakistanis, he said.
Bankers said the advances to the corporate sector were on the decline but the diversification of advances has created more avenues for the future credit growth, which will ultimately stimulate the economic growth.
The fastest growth was observed in the area of consumer financing, though Pakistan is still on the lowest side in terms of consumer financing.
The share of consumer financing has reached 14 per cent, now better than China where the consumer financing is 12 per cent.
In Pakistan, consumer indebtness is only 4.2 per cent, which is on the lower side when compared with the emerging economies.
Consumer indebtness is an important determinant in gauging the consumer penetration, which is simply a measure of consumer loan as a percentage of annual personal disposable income.
Despite tighter monetary environment, the growth in consumer finance could be on the higher side compared to any other lending avenue. This is in line with last few years trend.
“We expect advances to grow by 15-16 per cent annually for next 5 years,” said Imran.
