KARACHI, Feb 11: A stagnation in textile export and a fall in domestic cotton prices this season has led to a 30-per cent drop in bank borrowing of the textile mills this year as compared to their borrowing from banks last year.

Banks report borrowing of textile mills till last week of December 2001 amounted to Rs20.1 billion as against Rs26.2 billion financing given to them in the same period of 2000 season. A drop of more than Rs6 billion in demand of the bank credit by the textile mills amply demonstrates the slump that grips Pakistan’s strategic industry.

“High financial cost, unstable international market and an expectation of a fall in domestic cotton prices,” a leading textile exporter identified a few factors for leaving a wide margin of his allocated credit line unutilized in the bank. “I want to keep my balance sheet clean of unpaid loans and have, therefore, preferred to adjust outstanding loans and do business with whatever little cash I have,” he explained.

This is the third consecutive season of bumper cotton crop coupled with an all pervading international recession, which has hit hard all the segments of textile industry in Pakistan.

Export earnings of the textile group during single month of January is down by about 10 per cent over December 2001. Official figures put export earnings during January from textile at $432 million, down from $480 million in December 2001 and about $470 million in January last year.

In last seven months — July 2001 to January 2002 — export earnings from textile group amounted to $3.3 billion by and large same was earned in the same period of fiscal 2000-2001.

Growers complain of ginners holding back their payments on seed cotton sale. Ginners are unhappy of maintaining an unsold stock of almost two million cotton bales. Spinners are protesting on government’s intervention through the Trading Corporation of Pakistan (TCP) to maintain a price level of Rs1,600 per 40 kg. Value-added sector have their own complains of getting inferior quality yarn on relatively high prices which make them uncompetitive in the export market.

High cost of bank financing has already driven the textile exporters away from the banks. Most of them have started paying back their unpaid loans to banks to reduce the burden of financial cost. The State Bank reported a retirement of over Rs18 billion from exporters in first six months of this fiscal year as against loaning of more than Rs6 billion to exporters in same period last fiscal.

All these factors have combined to bring down textile sector demand on overall bank borrowing this season. Bankers report a total financing of Rs31 billion till last week of December to the textile. Earlier in 2000 cotton season, banks extended a total of Rs39.3 billion to all the segments of cotton trade.

This season the mills borrowed Rs20.1 billion as against Rs26.2 billion last year. Ginners obtained Rs9.5 billion bank financing this year as against Rs11.5 billion last year. The TCP has utilized only Rs800 million this year as against Rs300 million last year. Traders have obtained Rs200 million bank loans this year as against Rs900 million last year.

The State Bank has already reported a drop of almost 50 per cent in the overall private sector bank credit demand this year. In last six months (July-Dec 2001) credit offered to private sector amounted to Rs48.6 billion as against Rs90.8 billion same period last year.

The cotton financing consumed Rs31 billion and Rs12 billion was taken up in the merger of NDFC with National Bank of Pakistan. It means that total credit demand by the industry was hardly Rs5.8 billion in first six months as against over Rs45 billion in same period last fiscal.