Credit demand slows 11 per cent this year

Credit demand growth slowed down to 11 per cent during fiscal year 2010 on the back of reduced government borrowing and sluggish consumer segment performance.

The growth on monthly basis went up marginally by one per cent to Rs5.8 trillion during May 2010, according to Elixir Securities.

The growth slowed in the first 11 months of fiscal year 2010 compared with a 14 per cent rise witnessed in the same period last year.

Government’s contribution at 75%

The government has always been in the limelight because of its high borrowing appetite to meet its fiscal needs, said Elixir Securities analyst Hifza Zia.

The government’s credit growth decreased 22 per cent this year against 33 per cent in the same period last year.

The government emerged as the main borrower with incremental contribution standing at 75 per cent during the first 11 months of fiscal year 2010.

The government has primarily relied on commercial banks for its financing requirements after entering into the IMF programme, said Zia in the company research report.

Banking sector’s investment in securities during the period stood at Rs326 billion, up 33 per cent, while additional direct lending to the government was at Rs59 billion, down from Rs189 billion in the same period last year.

Consumer financing

Consumer financing has not recovered from its declining trend since early 2008 and has remained in the negative zone in fiscal 2010. It decreased by Rs47 billion or 16 per cent in FY10, said Zia.

Among major consumer financing heads, personal loans suffered a major blow with a decrease of Rs21 billion, followed by autos and credit cards which declined Rs12 billion and Rs7 billion respectively during the first 11 months of the current fiscal year.

Private sector credit’s share up to 25%

Credit to non‐government sector increased by five per cent, with incremental contribution standing at 25 per cent compared to 22 per cent during 11MFY09. The non-government sector includes public sector enterprises, non-bank financial companies (NBFCs) and the private sector.

The main reason for the rise is an uptick in private sector credit demand, with a three per cent increase compared with no growth in the same period last year, said Zia.

Manufacturing and electricity, gas and water supply segments added Rs45 billion and Rs64 billion respectively to the total incremental private sector credit of Rs104 billion during 11MFY10. Commerce and trade and personal segments, however, witnessed net decrease of Rs13 billion and Rs41 billion respectively during the same period.

Published in The Express Tribune, July 3^rd, 2010.