KARACHI, Nov 5: Banks are reporting a pickup in the demand for the private sector credit during this quarter but the pace of the credit intake is still a bit slow.
“The private sector credit has started picking up with cotton financing,” said head of credit department of a state-run bank. But he said the credit demand is slower than what it should have been.
Businessmen say cancellation of export orders after September 11 and consequent cuts in production activity has reduced their need for working capital. They say that withholding of investment plans in the aftermath of the September 11 terrorist attacks on New York and Washington has also decelerated BMR financing in the textile sector. Besides the rapid fall of the dollar in the inter -bank market and the consequent impact on export competitiveness is also lowering the credit demand.
Bankers say the private sector credit has started picking up in October but net distribution of credit to the private sector remained negative till the third week of the month. The official statistics confirms this statement.
SBP sources say net credit to the private sector proper stood at minus Rs15.6 billion on October 20 against minus Rs23.4 billion at the end of September. This contraction in the net credit flow means that the private sector has started making net borrowing from banks but it is hard to quantify the borrowings.
The private sector generally retires bank credit in the first quarter (July/September) of every fiscal year. The flow of bank credit picks up at the beginning of the second quarter in October when cotton financing accelerates.
Bankers say the intake of private sector credit will increase during this month with the start of sugarcane crushing sometime next week. Cotton and sugarcane being two of the four major cash crops impact the pattern of the private sector credit flow from banks. The other two crops i.e., rice and wheat also influence on it.
“One reason for lower credit intake is that banks began wheat financing quite late this year,” said former chairman of Pakistan Flour Mills Association Shaikh Akhtar Husain. “Flour millers in Sindh could not get enough credit,” he said when reached by Dawn over telephone. Wheat harvesting starts in March-April in Sindh and in April-May in Punjab and it lasts for 100 days. Hussain said banks started wheat financing after June. So most of Sindh- based millers could not avail of it.
Leading rice millers say rice financing would pick up both in Sindh as well as in Punjab this month. But many of them say rice financing may fall as exporters fear loss of substantial market share in the US and in the Europe.
Rice harvesting starts towards the end of October in Sindh and in mid-November in Punjab and it continues through 60-90 days.
It is against this backdrop that bankers foresee an sure rise in the demand for private sector credit in coming months but they fear that the demand may be sluggish.
The State Bank has already warned that economic activity may slow down during this fiscal year. It said in its annual report released recently that in case of a more protracted and extended war in Afghanistan Pakistan’s GDP can grow by only 2.5-3.75 per cent in the current fiscal year against the target of 4 per cent.