KARACHI: Banks extended record loans to the private sector in the first 10 months of the current fiscal year as the figure is significantly higher than the combined disbursements in the last two fiscal years.

The latest data issued by the State Bank of Pakistan (SBP) showed that the private sector borrowed Rs1,235.5 billion till April 22 in the current fiscal year against Rs415bn in the same period of last year. It was the highest amount borrowed by the private sector in last five years.

The bank advances to the private sector in July-April 2021-22 were much higher than the total loans extended in the last two years. The private sector borrowed Rs766.2bn in FY21 and Rs196bn in FY20.

The Covid pandemic badly hit the economy in FY20 that slowed down the private sector borrowings hitting the lowest in the five years due to lockdowns. The combined bank loans to the private sector in FY20 and FY21 was Rs962.5bn.

The situation has totally changed as the higher borrowing by the private sector reflects booming economic activities that may help the government achieve the GDP growth target and the SBP had recently forecast economic expansion of between 4 to 5 per cent this fiscal year.

Also the growing external trade led by record imports coupled with a handsome double-digit increase in exports is an indication of accelerated economic activities. The large-scale manufacturing grew by a record 8.2pc in February.

However, bankers and analysts said the cost of doing business has also gone up and may be one reason for higher borrowings by the private sector to meet their financial requirements. The inflation in April was 13.37 per cent reflecting the cost of production has also affected the businesses.

‘Investment is picking up on the back of Temporary Economic Refinance Facility (TERF) along with higher demand for working capital due to higher commodity prices,” said head of research at Pak-Kuwait Development and Investment Company.

The government provided cheaper money through TERF to the trade and industry to avert the impacts of the pandemic that hit the entire world and slowed down the economic growth. Pakistan also suffered and still facing the super cycle of commodity prices in the international market.

This price increase resulted in massive import bill of $65.5bn in the first 10 months of this fiscal year against $44.7bn in 10MFY21.

Exports increased by 25.5pc to $26.2bn in July-April from $20.9bn in the same period last year. Some analysts believe that rising export proceeds are partially due to higher prices received by the Pakistani exporters.

Loans provided by the conventional banks rose to Rs775.55bn in 10MFY22 against Rs181.5bn in 2020-21. It shows the conventional banks’ lending to the private sector was more than four times over the same period last year.

The Islamic branches of the conventional banks also increased their lending to the private sector which was almost double (91pc) than previous year. The private sector borrowed Rs267bn from Islamic branches against Rs140bn in the same period of last year.

The Islamic banks also increased their lending by Rs100bn during the 10 months of the current fiscal year. The total lending by the Islamic banks were Rs193bn against Rs93bn in the same period of last year.

Published in Dawn, May 8th, 2022