KARACHI: The private sector credit off-take jumped by 155 per cent to Rs911 billion during the July-mid March period compared to Rs357bn in the same period of last fiscal year, data shared by the State Bank of Pakistan (SBP) showed on Friday.

The increase in borrowings indicates higher economic activities that could lead to achieving the growth target set by the government.

The increase in terms of percentage is the biggest growth in the last five years while it has already crossed the total private sector credit off-take witnessed in FY21 when Rs766bn was borrowed. Initially, growth was announced at 3.9pc but later it was reviewed by National Accounts Committee which found the growth as 5.37pc in FY21. It was unexpected for most analysts and economists and the growth rate was termed as surprising.

The SBP in its last monetary policy predicted that the economic growth rate could be in the mid of 4-5pc for FY22 which is encouraging for the government facing challenges of Covid-19 pandemic, record oil and commodity prices and huge traded deficit.

The higher oil prices and costly imports increased inflation ultimately forcing the SBP to increase interest rate which is currently at 9.75pc. Despite costly borrowings, the private sector kept increasing its economic activities which are reflected from the credit off-take during FY22.

The conventional banks were at the forefront as they extended loans worth Rs567bn to the private sector during this period which was much higher than Rs174bn credit off-take during the same period in FY21.

The Islamic banks also increased their lending to the private sector but the size of the increase was much less than conventional banks. The lending to the private sector by Islamic banks reached Rs127bn during this period compared to Rs71bn in the same period in FY21.

The lending to the private sector by Islamic branches of the conventional banks was double than the previous fiscal year. These branches extended loans worth Rs217bn compared to Rs111bn in the same period in FY21.

The current private sector credit off-take has surpassed the total loans extended in the entire FY21. In the previous fiscal year, the private sector credit off-take was Rs766bn.

Some banking analysts believe that the private sector is getting higher loans due to low intake by the federal government from the banking system while deposits also increased this year.

This created higher liquidity for the banks, forcing them to lend maximum to the private sector.

Published in Dawn, March 26th, 2022