KARACHI: The private sector seems to have increased its activities despite persistent political uncertainty in recent months, latest data released by the State Bank of Pakistan (SBP) shows.

The trend is reflected by the fact that the private sector doubled its credit off-take in the first five months of the current fiscal year.

The private sector borrowed Rs112 billion between July 1 and Dec 1, which is 100 per cent higher than a year ago when its borrowing amounted to Rs54bn.

Higher borrowing by the private sector reflects increased economic activities. In its last monetary policy announced in November, the SBP expressed confidence that the economy would achieve a 6pc growth rate in 2017-18.

The SBP’s third quarterly report said low interest rates are impacting the profitability of banks as their yield spread declined and gains on the sale of securities evaporated. However, their net interest income started picking up pace led by a 10.5pc increase in interest earned on advances to customers.

Higher economic activities were also reflected by 57pc growth in foreign direct investment, although most of it is coming from China under the China-Pakistan Economic Corridor (CPEC).

“A low yield on government securities is the real reason for higher advances to the private sector,” said a senior banker, adding that prospects for higher growth in the private sector’s credit off-take have increased due to CPEC-related activities.

The share of interest earned on advances in total interest earned increased to 42.2pc in the third quarter of 2017 from 39.5pc last year.

On the contrary, the share of investment – dominated by low-yield government securities – in interest earnings reduced to 54.9pc from 57.6pc in the comparable quarter of 2016. This shows that growing advances (quantity impact) are offsetting the low interest (price) impact.

Credit to the private sector was Rs748bn in 2016-17. The recent pace of growth indicates that it may surpass the last year’s figure.

After the depreciation of the local currency, exports will likely increase while exporters, particularly those belonging to the textile sector, can possibly invest more by means of enhanced bank borrowing.

The textile sector still has the lion’s share in export proceeds. But it did not invest in modernising its machinery during the last five years like Bangladesh and India, making its products uncompetitive in the international market.

Published in Dawn, December 17th, 2017