KARACHI: Private sector borrowing from banks — said to be the most important macro indicator — went up sharply by over 65 per cent in December 2020, latest data issued by the State Bank (SBP) shows.

Private sector borrowed Rs215.5 billion from banks since July to Jan 8, 2020-21 compared to Rs130.2bn in the same period last year amid accelerated economic activities. The rebound in December borrowings emerged as the turning point against the sharp decline — by 88pc — witnessed in the previous five months of the current fiscal year compared to the same period in FY20.

In its monetary policy issued on Friday, the SBP said it expects growth rate slightly above 2pc despite upside risks.

Some other macro indictors also reflect the sudden jump in the borrowing from banks.

The SBP governor recently said that economic recovery was under way since July and has strengthened in recent months.

Large-scale manufacturing (LSM) grew by 7.4pc in October and 14.5pc in November.

The available data does not show which sectors were buying higher money from the banks, but most of the it went for working capital.

Another set of SBP data showed that manufacturing sector’s borrowing reached Rs1,284.9bn at the end of November FY21.

Manufacturing recovery is also be­coming more broad-based, with 12 out of 15 sub-sectors registering positive growth, the ­central bank said.

One of the reasons for higher borrowing by the private sector was the drastic cut in interest rate while banks also received record growth in their deposits. The SBP slashed interest by 6.25 percentage points to 7pc from March to June 2020, thereby encouraging the private sector to get benefit of the situation arising out of the Covid-19 pandemic.

The banking sector deposits in 12 months increased by 20pc in October 2020 year-on-year basis reflecting high liquidity in the banking system. This forced banks to utilise the liquidity resulting into huge investment in government papers and enhanced advances to private sector.

The banking sector deposits reached Rs16.664 trillion in October 2020 compared to Rs13.912tr in the same month of the previous year.

The banks’ deposits in the first 10 months of the calendar year 2020 have so far grown by 14pc — the highest in thirteen years.

The SBP data showed that both the conventional and Islamic banks increased their lending to private sector.

However, Islamic banks’ lending to private sector increased tremendously during the last six months of the current fiscal as it reached Rs62.3bn against Rs11.7bn in the same period of last fiscal.

The private sector credit off-take from conventional banks increased to Rs98.2bn against Rs56.5bn in the same period of last year.

The government has made it mandatory for banks to extend loans for low-cost housing but no official data is available from the SBP as to how much money was released for these projects.

However, bankers said the loans for construction industry have increased as the sector’s activities went up across the country. These loans were other than the ones for low-cost housing sector.

“At least three sectors including housing and construction, auto sector and exports have shown much better growth than previous year and they borrowed from banks,” a senior banker said.

Published in Dawn, January 24th, 2021