Outstanding advances go up 9.98% year-on-year

Amount to Rs3.15 trillion at end of January

KARACHI: Outstanding advances extended to private-sector businesses at the end of January amounted to Rs3.15 trillion, up 9.98% from a year ago.

According to data released by the State Bank of Pakistan (SBP) on Friday, the amount of outstanding loans on the books of private-sector businesses at the end of January declined 1% on a month-on-month basis.

SBP data reveals the largest year-on-year (YoY) loan increases (in percentage terms) were recorded in the categories of machinery import (79.2%), fixed assets (25.3%), securities shares and other financial instruments (21.7%), readymade garments (17.1%) and real estate (11.3%).

The YoY rise in personal advances clocked up at 9.55% at the end of January. They amounted to Rs390.2 billion, which was 0.49% lower than the personal advances outstanding at the end of December 2015.

An increase in private sector advances generally bodes well for the economy, as greater demand for credit is an indication of the expansion in the national output going forward.

According to Topline Securities research analyst Umair Naseer, slow credit growth for the most part of 2015 should be attributed to lower working capital requirements by companies amid falling commodity prices, low aggregate demand and below-average performance of the textile sector.

SBP data shows advances to different commodities-related businesses declined on a YoY basis. Rice and paddy (-3.73%), wheat (-1.42%), indigenous raw cotton (-3.7%) and ‘other raw materials’ (-31.7%) recorded a significant decline in advances on an annual basis by the end of January.

However, Naseer expects stronger growth in credit in 2016 in view of the China-Pakistan Economic Corridor (CPEC)-related projects. Projects of $28 billion (out of the total of $46 billion) will be completed by 2018 under the CPEC, Naseer said, triggering higher advances growth.

“Our back-of-the-envelope calculation suggests these projects will generate an additional credit demand of $2 billion annually for the next three years, which is equivalent to 5% of the total advances of the industry,” he said.

Quoting banking sector sources, he said the local component of the CPEC-related financing could be 10%-20% of the total planned investment during the next three years. “We now anticipate advances to grow by 10%-12% in 2016.”

Published in The Express Tribune, February 21^st, 2016.

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