KARACHI, Oct 2: Banks lent Rs21 billion to the private sector in first two months of this fiscal year, three times more than what they had lent to them in a year-ago period.

Data released by the State Bank show that the private sector credit jumped to Rs21 billion at the end of August from Rs4 billion at the end of July 2004. Comparable data shows the private sector credit had shot up to Rs7 billion at the end of August from minus Rs2.2 billion at the end of July 2003.

Senior credit officials of local and foreign banks say they have seen private sector credit rising fast in September, which means total lending to the private sector during the first quarter of this fiscal year would be much higher than in the same period of last year.

The policy makers have set a tentative target of Rs200 billion for private sector credit during this fiscal year, down from a little more than Rs300 billion in the last year.

"Credit demand has picked up a bit earlier this year chiefly due to a kick-start in agricultural loaning," said a senior executive of a large local bank. The banks involved in SBP's mandatory agricultural loaning scheme disbursed Rs14 billion in July-August 2004 against full fiscal year target of Rs85 billion.

Lowering of mark-up from 14 to 9 per cent by Zarai Taraqiati (Agricultural Development) Bank and availability of enough liquidity with the banks can be cited as major reason for high disbursement of farm loans.

Senior bankers say credit off-take by the textile sector was also relatively high during the first two months of this fiscal year compared with a year-ago period as textile millers made capital investment in capacity enhancement to reap the benefits of the quota-free regime from January 2005.

Above all, demand for personal loans remained higher as the economy continued to grow faster. Many bankers also say that the private sector came up to borrow larger sums of money knowing that the interest rates are going to move up.

Businessmen endorse this view. "It's true. A rising trend in interest rates led businessmen to increase borrowing to keep the cost low as long as possible," says Sh. Amjad Rashid, Vice Chairman, Pakistan Venaspati Manufacturers Association. "Textile tycoons made particularly large borrowings for longer terms."

Out of Rs21 billion lending to the private sector in July-August 2004, Rs19.7 billion were lent by commercial banks. In the comparable period of last year, their share was Rs3.5 billion in total private sector lending of Rs7 billion. Senior bankers say commercial banks' lending increased due to higher demand for credit in agricultural and textile sectors.

GOVT. BORROWING: SBP data shows that in July-August 2004, government borrowing for budgetary support zoomed to Rs52 billion, bursting through the full fiscal year target of Rs45 billion. In a year-ago period the government had borrowed Rs33 billion from the banking system. Bankers say rising trend in the interest rates was a key factor also behind higher government borrowing.

The weighted average yield on benchmark six-month treasury bills rate rose from 2 per cent at the end of last fiscal year to 2.52 per cent in July and then to 2.62 per cent in August 2004.

Senior bankers say the government had to borrow more from the banking sector as it deferred collecting petroleum development levy on domestic oil prices to keep them from reflecting the increase in international prices.

But they say that as the fiscal year progresses, the government may find room to reduce its bank borrowing. An anticipated higher borrowing through non-bank sources and a big increase seen in the profits of state-run entities like OGDCL and PTCL, much higher than the budgeted estimates, should enable the government to cut its borrowing form banks.