Taking advantage: Bank-lending to private sector posting highs
Fastest pace of growth recorded in the last eight years, SBP data reveals.
According to the State Bank, private-sector credit during January-June last year decreased 3.7% to Rs2.9 trillion, as a result credit growth in the last calendar year comes around 5.9%. PHOTO: FILE
KARACHI:
The PML-N government is taking the flak from left, right and centre for its lack of progress on the economic front, but, lately, the lending patterns of Pakistani banks are telling a refreshingly different story.
Private-sector credit stood at Rs3.2 trillion at the end of December last year, which is Rs296.2 billion higher than the corresponding figure at the beginning of fiscal year 2013-14, according to data released by the State Bank of Pakistan (SBP).
This translates into an increase of 9.9% in private-sector credit during the first six months of the current fiscal year, which is the fastest pace of growth recorded in the last eight years.
Growth in private-sector credit during the last six months remained the highest in the textile industry. Its outstanding credit at the end of December was Rs614.9 billion, which is exactly Rs100 billion up compared with the corresponding figure at the end of the last fiscal year. This signifies a pick-up of 19.4% in private-sector credit in just six months.
According to KASB Securities research analyst Farrukh Khan, improved electricity availability and business sentiment after the general election in May are the two main drivers of private-sector credit growth. “With private-sector credit being a lead indicator of economic growth, this bodes well for GDP growth in the year ahead.”
Other sectors of the economy that received notable credit from the banking system in the first six months of the current fiscal year include commerce and trade (Rs34 billion), electricity, gas and water (Rs31 billion), consumer financing (Rs18 billion) and agriculture (Rs17 billion).
“The textile sector is entering a strong investment cycle owing to the GSP Plus-related expansions while big-ticket energy projects in coal and hydro-electric are likely to materialise in the months ahead,” Khan said while referring to the likelihood of increased textile-related exports to the European Union in the wake of major concessions that Pakistan has received under the GSP Plus.
Textile and energy sectors are among the biggest borrowers from the banking system that account for 19% and 8% of outstanding private-sector credit, respectively.
Moreover, given better financial results that listed textile companies have posted in the last year and a half, Khan says banks are now more comfortable in lending to the export-oriented sector.
Private-sector credit during January-June last year decreased 3.7% to Rs2.9 trillion. Therefore, private-sector credit growth in the last calendar year comes around 5.9%, SBP data shows.
The private sector took a beating 2008 onwards, which hurt its growth as well as credit disbursement. Therefore, an increase of 9.9% in private-sector credit in the last six months seems impressively high compared with the 5.8% annualised rate of growth for the last seven years.
One of the beneficiaries of the recent increase in private-sector disbursement will be the banking system. Investing in government securities -- which is what the banking sector has mainly been doing for the last five years – may guarantee risk-free returns, but extending credit to the private sector results in improved interest margins and better bottom lines for banks.
“It seems that the cycle has turned. Improved credit off-take will allow banks to increase their net interest margins, as asset deployment will be taking place at rates in excess of those offered by government treasury bills,” Khan noted.
Published in The Express Tribune, January 25th, 2014.
The PML-N government is taking the flak from left, right and centre for its lack of progress on the economic front, but, lately, the lending patterns of Pakistani banks are telling a refreshingly different story.
Private-sector credit stood at Rs3.2 trillion at the end of December last year, which is Rs296.2 billion higher than the corresponding figure at the beginning of fiscal year 2013-14, according to data released by the State Bank of Pakistan (SBP).
This translates into an increase of 9.9% in private-sector credit during the first six months of the current fiscal year, which is the fastest pace of growth recorded in the last eight years.
Growth in private-sector credit during the last six months remained the highest in the textile industry. Its outstanding credit at the end of December was Rs614.9 billion, which is exactly Rs100 billion up compared with the corresponding figure at the end of the last fiscal year. This signifies a pick-up of 19.4% in private-sector credit in just six months.
According to KASB Securities research analyst Farrukh Khan, improved electricity availability and business sentiment after the general election in May are the two main drivers of private-sector credit growth. “With private-sector credit being a lead indicator of economic growth, this bodes well for GDP growth in the year ahead.”
Other sectors of the economy that received notable credit from the banking system in the first six months of the current fiscal year include commerce and trade (Rs34 billion), electricity, gas and water (Rs31 billion), consumer financing (Rs18 billion) and agriculture (Rs17 billion).
“The textile sector is entering a strong investment cycle owing to the GSP Plus-related expansions while big-ticket energy projects in coal and hydro-electric are likely to materialise in the months ahead,” Khan said while referring to the likelihood of increased textile-related exports to the European Union in the wake of major concessions that Pakistan has received under the GSP Plus.
Textile and energy sectors are among the biggest borrowers from the banking system that account for 19% and 8% of outstanding private-sector credit, respectively.
Moreover, given better financial results that listed textile companies have posted in the last year and a half, Khan says banks are now more comfortable in lending to the export-oriented sector.
Private-sector credit during January-June last year decreased 3.7% to Rs2.9 trillion. Therefore, private-sector credit growth in the last calendar year comes around 5.9%, SBP data shows.
The private sector took a beating 2008 onwards, which hurt its growth as well as credit disbursement. Therefore, an increase of 9.9% in private-sector credit in the last six months seems impressively high compared with the 5.8% annualised rate of growth for the last seven years.
One of the beneficiaries of the recent increase in private-sector disbursement will be the banking system. Investing in government securities -- which is what the banking sector has mainly been doing for the last five years – may guarantee risk-free returns, but extending credit to the private sector results in improved interest margins and better bottom lines for banks.
“It seems that the cycle has turned. Improved credit off-take will allow banks to increase their net interest margins, as asset deployment will be taking place at rates in excess of those offered by government treasury bills,” Khan noted.
Published in The Express Tribune, January 25th, 2014.