KARACHI, Jan 15: Banks’ rising liquidity driven by remittance inflows and falling interest rates has triggered a sharp recovery in loan disbursement to the private sector in the last six months, a source said on Wednesday.

Net loans to the private sector totalled Rs58 billion during July 1-Dec 22, up 49 per cent from Rs39 billion in the year-ago period, the source told Dow Jones Newswires. The data show a significant recovery from 2001, when demand for credit slumped in the wake of an economic slowdown following the Sept 11 attack on the US.

The final data for the July-December period of the current fiscal year are still being processed and will be out next week, the source said. Traditionally the manufacturing and export-oriented sectors, led by textile firms, start borrowing from banks in September and repay short-term loans from March onward, under a seasonal credit period every year.

The source, however, said the government was unlikely to meet its target of Rs99 billion for loan disbursement to the private sector for the fiscal year 2002-03, due to the alternate sources of credit, such as remittances from abroad and repatriation of export proceeds. One of the key factors driving increased lending was the continued demand for loans from exporters taking advantage of the recent spate of interest rate cuts, the source said.

The central bank in mid-November reduced its benchmark discount rate — at which it lends money to banks for up to three days — by 1.5 percentage points to a record low of 7.5 per cent, compared with 14 per cent in July 2001. Currently, exporters are borrowing at 6 per cent from commercial banks, down from 8 per cent in early November, but sharply lower from 12 per cent in the second half of 2001.

In late 2001, the central bank began an aggressive round of rate cuts to cushion the economy from the adverse effects of the Sept 11, 2001 attacks and a war in neighbouring Afghanistan. Still, a private-sector banker said, the loan disbursement data did not fully reflect credit demand in the private sector, which was also relying on overseas remittances for its borrowings.

“A lot of industries are also using remittances from abroad and exporters are repatriating proceeds to meet (loans) demand,” the banker said. Exports in July-December rose to $5.197 billion from $4.457 billion a year ago, with textile exports rising 16 per cent on year to $3.313 billion.

Banks are flushed with liquidity owing to rising remittances from expatriate Pakistanis and central bank dollar-buying from the inter-bank market that leaves behind a large rupee liquidity. Bank deposits have risen by Rs125 billion in the last six months to Rs1,608 billion, Mohammad Sohail, research head at Investcap Securities, said. In the same period a year ago, deposits grew just Rs45 billion, he said.—Dow Jones Newswires