KARACHI: Net credit to the private sector appeared on the positive side for the first time in 2017-18, a recent report by the State Bank of Pakistan (SBP) shows.

Compared to the last fiscal year, the private sector was retiring debt until now on a net basis.

The SBP report shows the private sector’s credit off-take was Rs20.5 billion during July 1 and Nov 3. Earlier on, however, its retirement of debt outpaced fresh borrowing.

Conventional banks did not actively promote private-sector credit off-take, although their Islamic banking branches played a key role in the overall increased lending.

Conventional banks’ lending to the private sector was just Rs1.429bn during the period as opposed to the retirement of Rs65bn a year ago.

Islamic branches of conventional banks extended loans of Rs32.3bn to the private sector against Rs19.5bn disbursed in the same period last fiscal year.

Data shows businesses prefer to borrow from Islamic branches of commercial banks

This shows the private sector is more inclined to borrow from Islamic branches of commercial banks. However, Islamic banks could not capture the market, which currently seems to be occupied by Islamic branches of conventional banks.

Islamic banks were still recording a net retirement of debt amounting to Rs13.2bn. More discouraging is the fact that the private-sector credit off-take from Islamic banks was Rs17.2bn in the same period of 2016-17, which is reflective of their poor performance in recent months.

Islamic banking has been growing at a fast pace. It is reflected by the aggressive growth of Islamic branches operated by conventional banks.

According to another report by the SBP, the market share of Islamic banking assets and deposits in the overall industry was 11.6pc and 13.7pc, respectively, at the end of June.

Assets of the Islamic banking industry were Rs2,035bn at the end of June while net investments by the Islamic banking industry were Rs537bn. Net investments of full-fledged Islamic banks were Rs226bn at the end of June as opposed to net investments of Islamic banking branches of conventional banks that amounted to Rs310bn.

Published in Dawn, November 19th, 2017