KARACHI: The falling interest rates for the last six months have failed to mobilise the private sector to seek bank credit, but the country’s economic managers are happy over reduced cost of government borrowings.

A report of the State Bank of Pakistan showed that the private sector borrowings fell 37 per cent to Rs195 billion during the first 10 months of this fiscal year compared to the same period last year.

The SBP’s key interest rate has fallen to 8pc from 10pc in November 2014.

Analysts and the business community take different positions on the factors behind the odd trend.

“The private sector is not ready to take risk in a hostile business environment and precarious law and order situation particularly in Karachi,” said Arshad Vohra, former chairman SITE Association.

He said this mega city needs special attention of the government as its crumbling infrastructure requires Rs250 billion investment per year to sustain. “Banks have also made it difficult to borrow as the number of restrictions has been increased,” he added.

With poor infrastructure and law and order situation businesses performed better last year suggesting political instability is a major reason behind the reluctance of the investors this year.

Analysts believe cheaper money is flowing in the equity market while the banks are in the front to earn from thriving capital market.

Banks have also been making good profits from investment in the government papers particularly high-yield Pakistan Investment Bonds (PIBs).

“Banks are also weighing the situation from various dimensions. Lending to private sector under the present political instability and poor law and order could be risky while option for risk-free earnings is open for banks,” said a senior banker.

Banks earned record profit in 2014 despite all political and non-political hurdles. “Their non-performing loans (NPLs) have also reduced,” added the banker.

Published in Dawn, May 7th, 2015

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