KARACHI: Amid rapidly expanding economic activities, the conventional banks for the first time in the last three years made aggressive lending to the private sector instead of investing in risk-free government securities.

The banks extended over five times more advances to the private sector in the first six and half months of the current fiscal year, exceeding the combined advances they had made in the entire FY21 and FY20.

The State Bank of Pakistan (SBP) data showed that the conventional banks made total advances of Rs514.7 billion during almost the first seven months (July 1, 2021-Jan 14) against Rs97.2bn in the same period last year.

It is to note that the flow of liquidity to the private sector in the entire FY21 was much less at Rs379.5bn but it had energised the economy to expand at a rate of 5.37pc. Interestingly, the advances to the private sector in the current fiscal year look much higher than last year, which could further enhance the economic growth rate. The combined advances of conventional banks in FY21 and FY20 were Rs408.7bn.

Banks posted high profitability in the first nine months of the calendar 2021.

The Islamic branches of conventional banks depicted a similar trend as their advances to the private sector also grew by 175pc to Rs171bn in the first half of FY22 compared to Rs62bn in the same period last year.

The fully-fledged Islamic banks, however, witnessed a moderate improvement of 83pc in lending to the private sector at Rs101bn against Rs55bn in the corresponding period last year.

According to the Ministry of Finance, the major chunk of private sector credit was used for working capital. The overall 6-month credit to the private sector for FY22 exceeded the total amount of the entire fiscal FY21. The half-year credit to the private sector was Rs787bn which was even higher than Rs766bn for the entire FY21.

The SBP in its latest monetary policy statement has predicted that the economy is likely to expand by 4.5pc in FY22.

Published in Dawn, January 29th, 2022