KARACHI: Net advances of the banking sector grew 20.6 per cent in July-September, according to the quarterly performance review released by the State Bank of Pakistan (SBP) on Tuesday.

“It is attributed to 51.5pc increase in financing by Islamic banking institutions. Investments have also increased (12.8pc), resulting in the expansion of 16pc in the asset base of the banking sector,” said the report.

Gross domestic advances to the private sector declined by Rs5.4 billion, the report said, adding that the decrease was significantly lower than the contraction of Rs112.2bn in the same period last year.

The broad-based advances disbursement to various sectors – agriculture, textile, automobile and electronics – resisted the overall fall in financing during the reviewed quarter. The segment of small and medium-sized enterprises (SME), however, showed a decline of Rs10.8bn in the quarter against a disbursement of Rs27.4bn a year ago.

Consumer financing continued its steady growth with a 5pc increase during the quarter. This was primarily on account of auto, mortgage and credit card loans. “It is essential to note that cars’ production has been quite impressive during July-September,” said the SBP report. In line with the trend, Islamic banking contributed 28pc of the total increase in consumer financing during the quarter. About 73pc of the increase in auto financing was disbursed by Islamic banks, said the report.

It noted that the share of fixed investment loans was steadily increasing in both corporate and SME segments. In the case of SMEs, the share of fixed investment loans rose to 25.6pc in the quarter from 14.5pc in the comparable period of 2014. This reflects improved investors’ confidence in the long-term outlook of the domestic economy in response to favourable macroeconomic conditions, including the low interest rate.

“Demand for credit might rise in the future with the expected increase in economic activity. Banks need to calibrate the changing macroeconomic environment in their business models in order to better capitalise the emerging opportunities,” the SBP said.

“The seasonal pattern along with robust growth in the large-scale manufacturing index observed in July-September suggests that advances to the private sector will rise in October-December,” it said, adding that the core funding source of banks – deposits – is likely to improve in the upcoming quarter.

Published in Dawn, December 13th, 2017