KARACHI: Bank advances to the private sector plunged over 70 per cent in more than eight months of the current fiscal year indicating the lowest private sector participation for a troubled economy.

The fiscal year 2022-23 was the worst economic year for the country as the growth was negative with a steep fall in the private sector borrowing from banks. However, the current year looks to follow the same path, even far behind the last year’s track.

According to the SBP, the private sector borrowed just Rs73bn during July 1-March 8 FY24 compared to Rs246bn in the same period of last year. This massive decline indicates that the private sector is not expanding and no new ventures or projects are started.

Banks have been making huge profits by lending to the government and are reluctant to take the risk of extending loans to the private sector. On the other hand, the private sector is also reluctant to borrow due to unprecedented interest rates.

So far the interest rate was kept at 22pc in the current fiscal year which increased the cost of doing business too high to compete or sustain.

Contrary to the private sector, the government borrowed Rs4.2 trillion during this period encouraging banks to use maximum liquidity for risk-free investments for high returns through treasury bills and Pakistan Investment Bonds (PIBs).

The details show that the conventional banks recorded a net debt retirement of Rs33bn against net lending of Rs263.7bn in the same period of last year.

Almost all banks earned 70 to 100 per cent profits in the calendar year 2023 mainly on account of earnings from interest on lending to the government.

The Islamic banks improved slightly but remained much behind last year’s performance. The lending to the private sector by the Islamic banks was Rs76.2bn during this period compared to Rs417.3bn of the last year. There is no match in lending to the private sector during these two periods.

The Islamic banking branches of commercial banks’ lending to the private sector was Rs30.3bn compared to net debt retirement of Rs435bn in this period of last year.

Published in Dawn, March 23rd, 2024