KARACHI: Borrowing for infrastructure increased significantly in 2016, according to a recent report by the State Bank of Pakistan (SBP).

The SBP classifies loans taken by the construction sector in two categories: building and infrastructure.

Loans for building, however, registered a decline over the same period, the report showed.

It demonstrates that banks are benefitting from increased infrastructure construction under the China-Pakistan Economic Corridor (CPEC).

Loans for construction increased from Rs64.3 billion at the end of June 2015 to Rs85bn in Dec 2015. The amount stood at Rs106.7bn at the end of 2016, showing an increase of 25 per cent over the year.

Banks have started diversifying their loan portfolios after a historic decline in the key interest rate.

After a decade, loans extended by scheduled banks to the private sector increased to Rs748bn in 2016-17.

Loans for infrastructure in 2016 jumped 70pc, indicating that banks are getting full advantage of development projects taking place under the CPEC.

The SBP report showed loans for infrastructure rose to Rs58.4bn in Dec 2016 from Rs34.5bn a year ago. The move by banks to diversify their loan portfolios can help them earn more despite the low interest rate scenario.

Banking analysts say the trend of inflation does not point to the possibility of an interest rate hike in the near future.

This means banks will have to rely on risky but higher-yielding advances to the private sector.

They say infrastructure development will not be affected even if the ruling party does not win the next general election because most projects are under the CPEC.

Loans for building construction in 2016 fell to Rs48.3bn from Rs50.7bn in 2015, the report showed.

Successive governments have tried in vain to boost the housing sector. There is currently a supply-demand gap of seven to eight million houses in the country. It was around five million 10 years back.

The report also showed bank advances of real estate, renting and other related business activities to be Rs128.3bn at the end of 2016, up 14.7pc from a year ago.

The cement sector has also been benefitting from infrastructure development.

Despite the disqualification of Nawaz Sharif as premier, the cement sector is expected to record significant growth this year.

“We believe local cement sales will remain sanguine in 2017-18... (We) expect the current political setup to continue till the general election next year and proceed with spending on infrastructure projects as planned.

“In light of this, we estimate local sales to grow by 8pc on a year-on-year basis in 2017-18 while we expect total dispatches to post 5pc growth,” said a report by Topline Securities.

Published in Dawn, August 5th, 2017