June 21, 2008	Saturday	Jamadi-us-Sani 16, 1429

KARACHI, June 20: The Private Sector Credit Advisory Committee (PSCAC) of the State Bank is holding a meeting on Saturday to review credit expansion to the private sector during the first 11 months of current fiscal year, which stands at Rs384.4 billion or 15.5 per cent higher over Rs287.1 billion in the same period last year.

The meeting will be presided over by Governor State Bank Dr Shamshad Akhtar and attended by private sector representatives, who are expected to give input with regard to current crisis being faced by trade and industry.

According to SBP working paper prepared for the third meeting of the committee, which, inter alia, will discuss current scenario of overall credit availability and developments in each group along with initiatives being taken and related issues and constraints.

The issue related to higher growth in private sector credit during the second half of current fiscal year (H2FY08) up to May 31, 2008 thus pushing the flow of bank credit to Rs384.4 billion, one of the highest among the last five years credit flow, will come up for detailed discussion.

The SBP document further states that the weekly average credit increase for the period (H2FY08) works out to be Rs7.7 billion whereas the previous four years average is Rs4.4 billion. Further, there was more evenly distribution during the weeks of FY08 than the previous year.

Contrary to this, the flow to private sector till the last week of December 2007, which stood at Rs215.6 billion, was lower than the previous three year’s averaged flow of Rs249.4 billion, the SBP disclosed in the document.

However, thereafter, it got momentum and its growth acceleration was at a much higher rate than for the same period. It grew by Rs168.7 billion in H2FY08 (up to May 31, 2008) compared with the previous three years’ average expansion of Rs85.5 billion.

However, the SBP pointed out that review of the real sector over a span of one year or so virtually portrays a very weak and non-existence of relationship between credit and productivity growth nexus. The SBP while expressing its concern stated that neither exports have grown substantially nor have the domestic supplies improved, leading to build up of inflationary pressures in the economy.The SBP’s working paper further stated that the weighted average lending rate (WALR) has stayed quite constant, at around 10.8 per cent. However, rising inflation means that the real rate of interest, shown by the Real Weighted Average Lending Rate (RWALR), has stayed negative during the quarter (Jan-Mar ‘08) and in fact has declined.

Consequently, the negative RWALR may be a motivating factor for corporate and other borrowers to get loans at low rate in real terms and invest in high yielding areas such as stock exchanges and real estate, the document went on to say.

However, the SBP equally admits that effects of global and domestic inflation could have increased input costs. A 100 per cent increase in price of oil has only been translated into a 20 per cent increase in the cost of oil in the domestic market due to the government subsidies.