KARACHI: Bank lending to private sector plunged 88 per cent in more than five months of the current fiscal year reflecting slow economic activities.

The recently issued State Bank data showed that net lending to the private sector was just Rs10.3 billion during July 1 to Dec 11 period of this fiscal year against Rs88.1bn in the same period of last year.

The data reflects that the Covid-19 pandemic has played a key role in bringing down economic activities in the country. The government and SBP have been offering cheaper money since the coronavirus pandemic found its way to Pakistan in March 2019, but the private sector is treading cautiously.

Further details show that commercial banking branches witnessed a net retirement of Rs33.4bn during this period spread over five months in FY21. This was against last year’s trend when the private sector had borrowed Rs31.4bn during the same period.

Positive improvement was noted in case of Islamic banks as the private sector credit off take increased during this period to Rs21.2bn compared to Rs19.2bn in last fiscal year.

Lending to private sector by Islamic banks’ branches of conventional banks also showed a better picture.

However, borrowings were lower than last year. The private sector credit off take from the Islamic branches of conventional banks were Rs22.5bn during the five months — much less than Rs37.5bn noted in the same period of last year.

The SBP has offered a number of incentives to the private sector to boost economic activities, mainly due to increasing pressure of Covid-19. The central bank brought down the interest rate from 13.25pc to 7pc while it also provided cheaper financing to many sectors.

The banks were told to restructure loans of trade and industries which helped them to improve their liquidity. Another data of the SBP shows that so far up to Dec 18, the banks had structured Rs217.7bn loans of the private sector.

The data showed that up to Dec 18, Rs657bn loans were deferred. Similarly, cheaper money was provided to trade and industries to avoid lay-offs. Loans approved for wages were Rs2,338bn while the loans approved for investment were Rs237.5bn.

So far, the government has not announced another lockdown as the second wave of coronavirus grips the country. However, low private sector credit off take reflects slow economic activities.

The government has been struggling hard to boost the construction industry. There is no official data available indicating the growth in the sector except that the demand for cement and steel has increased during the current fiscal year.

Published in Dawn, December 26th, 2020