In Pakistan, businesses continue to borrow amid economic slowdown
Real estate, auto, IT and pharmaceutical sectors record surge in borrowings
PHOTO: REUTERS
KARACHI:
Although Pakistan is facing an economic slowdown and there is a perception that almost every business is facing hardship, not all is bad. A few of the prominent businesses have continued to borrow more and make investments during these difficult times.
The real estate sector, car manufacturers, information & telecommunications and pharmaceutical sectors remained apparently optimistic during these tough economic times. These sectors borrowed more from commercial banks at a time when some of the large scale businesses are defaulting in paying-off debt to banks and others avoid accumulating more commercial loans in wait for the return of favourable times.
It is believed that the real estate sector has become dormant following the government raising a number of taxes on sale and purchase of houses, flats, shops, and open lands in the past over one year to discourage gambling and enable genuine people in need to buy the properties.
However, numbers tell a different story. The real estate sector has made a net commercial borrowing of Rs5.33 billion in the past three months (July-September 2019). With this, its outstanding borrowing surged to Rs33.64 billion, the State Bank of Pakistan (SBP) reported on Wednesday. Pakistan Real Estate Investment Forum President Shaban Elahi expressed his surprise over the surge in the outstanding loans.
“The surge in borrowing may have come on account of some real estate activities in the industrial sector. There may be some individuals who have borrowed as well,” he said. “Otherwise, there are almost next to nil transaction of sale and purchase of houses, flats, shops and open lands for quite a long time. Besides, commercial builders are sitting idle these days.”
The commercial borrowing by manufacturers of motor vehicles almost doubled to Rs63.20 billion in the past three months compared to Rs32.82 billion on June 30, 2019.
“The borrowing was most likely made to overcome the shortfall of the working capital by industry players, as car manufacturers were yet to clear the inventories (deliver car sale orders) they built in the recent past,” said Indus Motor CEO Ali Asghar Jamali.
He said it may take another four to six months to deliver all the car sales orders booked in the near past. “The placement of the orders by March-April may cause a notable drop in the commercial loan by car manufacturers and other vendors in the industry, as the economic slowdown has badly impacted car production and sales,” he said.
The commercial borrowing by IT increased by Rs15.89 billion, or 11.58%, to Rs153.03 billion in the past three months compared to Rs137.14 billion on June 30, 2019.
Industry officials, who requested anonymity, said that the surge in borrowing may have come mainly on the back of a lot of infrastructure development activities (3G/4G networks) by mobile phone service providing companies. Otherwise, the software houses are neither provided commercial loans due to lack of collaterals to be submitted in guarantee for the required loans nor are they in need of huge funding to run their software houses.
“Such lending is impossible in software - however, very much possible in case of telecom - because of telecom equipment,” an industry official responded in a short message.
Published in The Express Tribune, October 24th, 2019.
Although Pakistan is facing an economic slowdown and there is a perception that almost every business is facing hardship, not all is bad. A few of the prominent businesses have continued to borrow more and make investments during these difficult times.
The real estate sector, car manufacturers, information & telecommunications and pharmaceutical sectors remained apparently optimistic during these tough economic times. These sectors borrowed more from commercial banks at a time when some of the large scale businesses are defaulting in paying-off debt to banks and others avoid accumulating more commercial loans in wait for the return of favourable times.
It is believed that the real estate sector has become dormant following the government raising a number of taxes on sale and purchase of houses, flats, shops, and open lands in the past over one year to discourage gambling and enable genuine people in need to buy the properties.
However, numbers tell a different story. The real estate sector has made a net commercial borrowing of Rs5.33 billion in the past three months (July-September 2019). With this, its outstanding borrowing surged to Rs33.64 billion, the State Bank of Pakistan (SBP) reported on Wednesday. Pakistan Real Estate Investment Forum President Shaban Elahi expressed his surprise over the surge in the outstanding loans.
“The surge in borrowing may have come on account of some real estate activities in the industrial sector. There may be some individuals who have borrowed as well,” he said. “Otherwise, there are almost next to nil transaction of sale and purchase of houses, flats, shops and open lands for quite a long time. Besides, commercial builders are sitting idle these days.”
The commercial borrowing by manufacturers of motor vehicles almost doubled to Rs63.20 billion in the past three months compared to Rs32.82 billion on June 30, 2019.
“The borrowing was most likely made to overcome the shortfall of the working capital by industry players, as car manufacturers were yet to clear the inventories (deliver car sale orders) they built in the recent past,” said Indus Motor CEO Ali Asghar Jamali.
He said it may take another four to six months to deliver all the car sales orders booked in the near past. “The placement of the orders by March-April may cause a notable drop in the commercial loan by car manufacturers and other vendors in the industry, as the economic slowdown has badly impacted car production and sales,” he said.
The commercial borrowing by IT increased by Rs15.89 billion, or 11.58%, to Rs153.03 billion in the past three months compared to Rs137.14 billion on June 30, 2019.
Industry officials, who requested anonymity, said that the surge in borrowing may have come mainly on the back of a lot of infrastructure development activities (3G/4G networks) by mobile phone service providing companies. Otherwise, the software houses are neither provided commercial loans due to lack of collaterals to be submitted in guarantee for the required loans nor are they in need of huge funding to run their software houses.
“Such lending is impossible in software - however, very much possible in case of telecom - because of telecom equipment,” an industry official responded in a short message.
Published in The Express Tribune, October 24th, 2019.