KARACHI, Dec 9: Banks disbursed Rs12 billion fresh credit to the private sector in the last two weeks of October this year and bankers say the pace of disbursement may show further pickup from November onwards.

The State Bank cut its discount rate by 1.5 percentage point to 7.5 per cent in a belated move on November 16 and on November 27 it lowered the benchmark six-month treasury bills yield also by 1.5 percentage points to 4.6 per cent. The twin move has made it very difficult for the banks to continue to invest surplus funds in government securities and they are now finding ways to lend more to the private sector.

Bankers say that the Rs12 billion fresh credit disbursement in the last two weeks of October was due to seasonal pickup in credit demand mainly on the back of cotton financing. They say that with the start of sugarcane crushing last month the private sector credit would show an upward movement in November onwards adding that the rate cuts would also increase credit offtake as banks have started offering cheaper loans to selected clients after November 16.

The credit plan for this fiscal year envisages Rs94.7 billion credit for the private sector but at the end of October net credit offtake was still at minus Rs798 million. But despite the net credit being still negative the last two weeks of October saw Rs12 billion fresh borrowing from the private sector due to a pickup in demand.

Bankers say that net credit to private sector has been on the rise from November onwards but statistics are yet to pour in as the banks take some time in compiling credit data from across the country.

But they say that the target of Rs94.7 billion may be missed as they do not foresee any dramatic increase in private sector credit demand. The new democratic government that has retained two key economic managers of the military regime is following the economic policies of the past which Pakistan had to formulate in conformity of the IMF-World Bank prescriptions. These policies call for enhancing private sector credit in the areas of consumer financing and mortgaging business as well as small and medium enterprises. The policies that also call for enhanced credit flow towards the agricultural sector do not provide an enabling environment to the banks to increase corporate lending. In fact the banks are being asked to shift their lending focus from the conventional large corporate units to the above-mentioned areas.

Whereas it is yet to be seen if and when the desired shift in the lending focus would take place and how soon it would start paying off the short term scenario does not promise much. Bankers say even if they continue to cater to the credit needs of the large private sector units with conventional emphasis the overall credit offtake this fiscal year would remain much below the target of Rs94.7 billion. And if they try to shift the focus on to the new areas the pace of credit disbursement pickup would be slower because making aggressive lending in fresh areas requires a lot of time.

But if the banks are able to offer more and cheaper credit to the farming sector that indeed would help in lifting the economy.