KARACHI: In the first two months of the current fiscal FY20, private sector credit off take was negative, indicating that firms are largely retiring loans rather than borrowing either for investment or working capital requirements.

The State Bank’s latest data shows the private sector credit was negative Rs84.6 billion till August 30 against a net borrowing of Rs30.6bn in the same period of last fiscal year.

When contacted, president of a commercial bank said the situation would be clear at the end of the first quarter but he considered the slow economic growth and high cost of borrowing as major reasons for low private sector credit off take.

He said the private sector was still borrowing from banks but the amount was lower than the amount of debts retirement.

Bankers said the government has been offering attractive returns in its debt auctions that have attracted robust participation while at the same time, making money costlier for the private sector.

Both, the conventional banks and Islamic banks were facing the same situation of higher debt retirements. The debt retirement figures of the conventional banks were Rs81.9bn during the two months (July-August) against a net borrowing of Rs34bn in the same period of last fiscal. It indicates clearly the situation has significantly changed from last fiscal.

However, in case of Islamic Banks the debt retirement amount has been increased this year compared to debt retirement amount of the last fiscal. The Islamic banks noted a net retirement of Rs19.3bn against a net retirement of Rs6.5bn.

Only unchanged situation was noted in case of Islamic Banking branches of conventional banks. The private sector borrowing from these branches increased to Rs16.7 billion during the first two months of the current fiscal year compared to Rs3bn borrowed in the same period of last fiscal.

Published in Dawn, September 8th, 2019