KARACHI: The private sector borrowed a record Rs1.9 trillion from banks during the first half of FY25, registering a surge of 265 per cent from the same period last fiscal year.

The latest data released by the State Bank of Pakistan (SBP) on Monday indicated that banks have been extending advances to the private sector despite existing risks posed by sluggish economic growth and political uncertainty.

In the first quarter of the current fiscal year, the bank advances were much lower, but the steep fall in the interest rate encouraged the private sector to go for the relatively cheaper money. Since June 2024, the State Bank has slashed its policy rate by 900 basis points to 13pc from an unprecedented level of 22pc, which had stifled the growth.

The sharp deceleration of Consumer Price Index-based inflation, which hit almost a seven-year low at 4.1pc in Dec 2024, was the key reason that compelled the country’s monetary policy managers to slash the rate gradually.

The falling inflation has created space for more rate cuts in the upcoming monetary policy reviews, making financing cheaper for the private sector but denting the banks’ income.

As a strategy, the government has been borrowing through long-term treasury bills and Pakistan Investment Bonds, which are lower than the maturity amount.

The SBP data showed that the private sector borrowed Rs1.907tr during July-December FY25 against Rs521bn in the same period of last year, a surge of 266pc.

The main reason for higher lending to the private sector was the massive increase in advances during December, as banks feared till the last moment of 2024 that the government would impose a 15pc incremental tax if they failed to reach a 50pc advance-to-deposit ratio (ADR).

The banks also pumped a record Rs1.354tr into the Non-Bank Financial Institutions (NBFIs) during July-December 2024-25 against Rs485bn in the same period last year with a core objective to meet the ADR limit.

Conventional banks lent Rs1.112tr to the private sector during the first half of FY25 compared to Rs230bn in the same period of last fiscal year.

Similarly, the Islamic banks’ lending rose to Rs733bn compared to Rs236bn in the same period last year.

However, the Islamic branches of the conventional banks remained low-key and advanced Rs61.5bn against Rs55bn in the same period last year.

The State Bank reported that the banks’ total credit to the non-government sector during the first half of the current fiscal year was Rs3.212tr compared to Rs382bn in the same period last fiscal year.

Published in Dawn, January 7th, 2025