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Loans to private sector drop by Rs100bn

Updated January 13, 2018

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Latest data shows conventional banks scaled back their lending to the private sector by almost Rs50bn year-on-year to Rs182bn in July-December.
Latest data shows conventional banks scaled back their lending to the private sector by almost Rs50bn year-on-year to Rs182bn in July-December.

KARACHI: Credit off-take by the private sector witnessed a steep fall in the first half of the current fiscal year, indicating a slowdown in economic growth.

A recent report by the State Bank of Pakistan (SBP) shows that loans taken by the private sector fell by 28 per cent or Rs100 billion in July-December on a year-on-year basis.

Advances to the private sector during this period were Rs253bn compared to Rs353bn a year ago.

The government has set an economic growth target of 6pc for 2017-18. Initial economic numbers indicated the target was achievable. However, the ouster of Nawaz Sharif from premiership created uncertainty on the political front. The situation is worsening with each passing day due to frequent protests and calls for early elections.

Monetary expansion in July-December remained notably lower than preceding year, indicating that the govt failed to inject liquidity into the economy

The SBP report also noted that monetary expansion remained low in the first six months of the current fiscal year, which indicates that the government failed to pump money into the economy to accelerate GDP growth.

The World Bank recently forecast robust economic growth that could help Pakistan achieve the 5.9pc target in 2017-18. It also noted strong domestic demand and credit growth.

“Demand for credit is still robust due to high economic activities. Since the base for the last fiscal year was weak, growth looked very high. But due to a stable base, overall credit growth this year looks smaller than the last fiscal,” National Bank of Pakistan (NBP) President Saeed Ahmed told Dawn.

He said NBP has witnessed healthy demand for both project financing and working capital.

He said economic activities are significantly high this year.

The SBP’s report indicates that the entire banking sector, including the Islamic segment, recorded a visible decline in lending to the private sector.

Lending by conventional banks fell Rs49.5bn year-on-year to Rs182bn. Conventional banks were the largest supplier of credit to the private sector followed by Islamic banks.

Islamic banks’ lending to the private sector fell from Rs65.5bn a year ago to Rs26.5bn in July-December, a drop of Rs39bn.

Off-take from Islamic banking branches of conventional banks also noted a decline. Their lending fell to Rs44.6bn from Rs55.7bn in the same six months of the last fiscal year.

Published in Dawn, January 13th, 2018