The drop in SBP’s credit to the government sector is largely a consequence of the restrictions imposed by the IMF on government borrowings in a certain quarter. STOCK IMAGE
Total credit in the economy amounted to Rs10.7 trillion at the end of 2014, up 6.3% from a year ago.
According to statistics released by the State Bank of Pakistan (SBP) on Tuesday, the rise in credit to the private sector in 2014 was higher than the increase in credit to the government sector.
While the credit to the government sector increased 4.1% to Rs6.4 trillion last year, credit extended to the private sector surged 8.5% to Rs3.5 trillion over the same 12-month period.
Topline Securities estimates that credit growth is expected to increase more sharply in the current year because lower borrowings by the government will offer higher liquidity to the banking sector. “Lower interest rates on fixed income securities will force banks to adopt a more aggressive lending approach,” it added.
Credit to the government sector consists of two major segments: SBP’s credit to the government sector and scheduled banks’ credit to the government sector. Latest data shows that while the amount of the former came down in 2014 by 25.6%, the latter surged by 26.8% over the same period.
The drop in SBP’s credit to the government sector is largely a consequence of the restrictions imposed by the IMF on government borrowings from the SBP in a given quarter. In contrast, the rise in scheduled banks’ credit to the government sector appears to be on the back of their higher investments in government securities.
While scheduled banks’ credit to the government sector in the form of loans recorded an increase of 12.1% in 2014, the rise in their investments in government papers clocked up at 26.8%.
The stock of advances as a percentage of GDP – also known as credit penetration in the economy – currently stands at 18% in Pakistan, which is lowest among regional economies, according to Topline Securities. “Advances have reported decent growth in 2014, but there is room for further improvement with clear signs of economic recovery,” it said.
In addition to the investments in the securities and shares of the private sector, the overall credit to the private sector also includes loans that banks extend to the private sector.
While investments in the shares of private-sector businesses increased 12.3% in 2014, the rise in the loans extended to the private sector equalled 8.3%.
Total provisioning expense of scheduled banks until December 26 amounted to Rs436 billion, up 2.3% from a year ago. “We believe that the declining interest rate scenario and improving macros will likely keep the provisioning expense of banks in check,” Topline Securities said, adding it will contribute towards bottom-line growth in the banking sector.
Published in The Express Tribune, January 22nd, 2015.
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COMMENTS (5)
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Bad fiscal and monetary policy is expected when the State Bank is not autonomous but functions on the whims of the Finance ministr.
@gradiator Perhaps you did not read the article carefully. It says that Government borrowing have increased so much that no money is left for the private sector.
ET, If GOP Credit is 4.1% increase on Rs6.4T vs. 8.5% on Rs.3.5T to private, then given the base of Rs6.4T and Rs.3.5T isn't expansion of actual credit to Govt greater in Rupees than to the Private Sector?? Use a calculator.
This sounds like pretty great news. The government is not crowding out the private sector as much anymore, which is demanding credit again and getting better terms. That means more economics activity.
Thank you I$haq Dar!