KARACHI: Bank advances to the private sector surged manifold during the first half of the current fiscal year.

However, the textile sector — the largest borrower — claims that 40 per cent of spinning mills have been closed down due to harsh government policies.

The flow of bank money to the private sector was the highest during 1HFY25 compared to the last three years.

Financial experts believe the impact of this high liquidity could emerge in the next one and a half years, depending upon the type of investments.

The key reason for this massive private sector lending was to avoid 15pc incremental tax imposed by the government if banks fail to meet the 50pc Advance-to-Deposit Ratio (ADR) limit by Dec 31, 2024. Secondly, the interest rate has steeply fallen 900bps since June 2024.

The banks pumped a record Rs1.467 trillion into the non-bank financial institutions (NBFIs), much higher than Rs1.398tr advanced to the private sector from July 1 to Jan 17, 2024-25.

The All Pakistan Textile Mills Association (Aptma) recently announced that almost 40pc spinning mills nationwide had to shut down operations for many reasons, including the 18pc sales tax on inputs. The association claimed the closure would hit the exports on a large scale.

The frequently falling interest rate has catalysed higher liquidity outflow from banks to the private sector since the government has been borrowing less than the maturity amount, particularly in the case of treasury bills.

The conventional banks’ lending to the private sector reached Rs722.6bn compared to a net retirement of Rs3.3bn in the same period of last fiscal year.

Islamic banks also increased their lending to Rs625.5bn compared to Rs124bn last year.

However, Islamic windows of conventional banks lent Rs50bn compared to Rs32bn in the same period last fiscal year.

A tremendous difference was noted in the overall lending to the non-government sector during the period under review.

The lending crossed Rs2.933tr against just Rs53bn in the same period of last fiscal year.

The non-government sector includes credit to the private sector, NBFIs, and public sector enterprises.

Published in Dawn, January 25th, 2025