KARACHI, June 21: The high-paced private sector borrowing from banks has started slowing down as interest rates are rising belittling the benefits of large corporate borrowings to build up inventories.

Data released by the State Bank shows that in the week ending June 5 the stock of private sector borrowings from the banks since July 1 fell to Rs280 billion from about Rs283.6 billion a week earlier.

Bankers say this indicates that private sector borrowings from banks has started slowing down and that the private sector has started repaying bank loans as the interest rates are building up.

At Rs283.6 billion the private sector credit offtake between July 1, 2003 and May 29, 2004 was more than double the offtake of Rs131 billion in a year-ago period. The private sector had made excessive borrowing from banks not only to increase production but also to take the benefit of the historically low interest rates.

But as the treasury bills yields started inching up from the middle of February sending signals to the banks that overall interest rates may move up after sometime the clever among the private sector became cautious.

Then the reinforcement of this signal through further inching up of treasury bills yields made private businesses realise the changing scenario. But as the banks awash with excess liquidity continued making cheaper loans to banks net private sector credit offtake continued to rise: it kept moving up also because industrial production was growing.

Large scale manufacturing sector grew by 13.6 per cent between July-March 2003-04. In April, however, the lending rates of the banks too started moving up in response to earlier hikes in treasury bills yields.

Weighted average lending rate of all banks combined rose to 5.07 per cent at end-April from 4.69 per cent at end-March 2004. Bankers say their lending rates continued inching up in May also but the data on weighted average lending rate in May is still being compiled.

The private sector took another one month to respond to this change in the interest rate structure. That is why net private sector borrowing showed a rising trend till the end of May 2004.

But as the data shows net private sector borrowing has begun to fall in the first week of June. Bankers say the trend may continue. Even otherwise the private sector in Pakistan normally retires bank credit in the July-September and October-December quarters when their borrowing needs remain low.

In the mean time public sector enterprises or PSEs that had been retiring bank loans taking advantage of the low interest rates are now shifting gears. SBP data shows that the PSEs other than six major ones borrowed Rs18.7 billion in the week ending June 5.

This put their net borrowing from the banking system between July 1, 2003-June 5, 2004 to Rs10.7 billion from minus Rs8 billion a week earlier. Bankers say the build up in PSEs borrowing also reflects a Rs20.5 billion loan given to Parco by a syndicate of banks.

The cumulative borrowings of six major PSEs namely (i) Wapda (ii) KESC (iii) OGDC (iv) PTC (v) PIA and (vi) Pakistan Steel, however, remained unchanged at minus Rs19 billion. The reason is that most of these PSEs have improved their financial health.