KARACHI: Banks’ net lending to the private sector plunged 90 per cent during the first 10 months of the current fiscal year suggesting a sharp economic slowdown.

In the backdrop of unprecedented inflation and record-high interest rates, banks are not ready to take risks by extending loans to the private sector struggling to run businesses in highly unfavourable situations plagued with unending political and economic uncertainties.

In the given situation, banks are happily lending money to the cash-strapped PDM government to earn risk-free abnormally high-profit rates close to 22pc.

The latest data provided by the State Bank of Pakistan (SBP) showed that net bank advances to the private sector tumbled to just Rs129.6bn during July 1-May 5 FY23 against Rs1,296bn in the same period of last year.

The steep fall is the direct outcome of persistent political uncertainty and failure of economic policies while the growing risks of default continue haunting the stakeholders since the start of the current fiscal year.

Data breakup showed that the conventional banks’ lending to the private sector plunged by 84.4pc to just Rs128.7bn in July-April 2022-23 from Rs820.4bn in the corresponding period last year.

The lending by the Islamic banks to the private sector almost halved to Rs98.6bn in the current fiscal year from Rs196.5bn in the same period last year.

Islamic banking has been expanding fast to get the maximum share in the overall banking industry but the FY23 drastically slashed its chances to grow further high.

However, the lending by the Islamic branches of conventional banks was extremely disappointing which showed a net retirement of Rs97.7bn during 10MFY23 compared to net lending of Rs279.5bn in July-April FY22.

Keeping in view the economic downtrend, the PDM government has recently revised its growth forecast to just 0.8pc for FY23. The IMF, World Bank and ADB already predicted the economic expansion in the range of 0.4-0.6pc.

However, media reports suggest the national economy is likely to contract by 1pc this fiscal year. The SBP, in its latest half-yearly report, said the GDP growth could be less than the estimated 2pc.

The bank credit to the private sector could further decline in the coming months since there are restrictions on imports amid dwindling foreign exchange reserves massively hampering the performance of the manufacturing industries, especially the export-oriented sector, which largely relied on imported raw materials.

Published in Dawn, May 23rd, 2023