Private sector borrowing: Appetite for credit remains subdued

Reads Rs149.3b compared to Rs325.1b in comparative period.

KARACHI:

The appetite of the country’s private sector for credit remained subdued for the most part of the outgoing fiscal year relative to 2013-14, according to the Economic Survey of Pakistan.

Banks’ credit to the private sector in 2014-15 (until May 22) remained Rs149.3 billion, down 54% from Rs325.1 billion in the corresponding period of the preceding fiscal year.

Private-sector credit growth is considered a true reflection of the sentiments of the country’s business community. Companies borrow from the banking sector and invest in expanding their operations only if they are bullish on the economy and expect a revival going forward.

Credit to the private sector touched a six-year high in 2013-14 with Rs371.3 billion. It remained Rs217 billion, Rs122 billion, Rs113 billion and Rs20 billion in 2011-12, 2010-11, 2009-10 and 2008-09, respectively.



Overall, money supply in the economy has increased by 7.93% in the outgoing fiscal year (until May 22) as opposed to the increase of 6.78% recorded in the same period of 2013-14.

In November 2014, the State Bank of Pakistan (SBP) reversed its stance from tight to accommodative due to an improved economic environment and stable outlook. It reduced the policy rate by 50 basis points to 9.5% in the second quarter of current fiscal year, which was followed by three more cuts that resulted in the policy rate of 7% with effect from May 25, the lowest rate in the last 42 years.

Government borrowings from the banking system for budgetary support and commodity operations stood at Rs579.7 billion between July and May, up 231% from Rs175.1 billion in the comparable period of the last year.

Within the banking system, a large part was financed by commercial banks: it amounted to Rs1.1 trillion as opposed to Rs250.6 billion last year.

The survey said significant borrowings from scheduled banks for budgetary support during the current fiscal year reflect a major shift in the borrowing pattern: away from the central bank and towards scheduled banks.

The SBP Amendment Act 2012 requires net zero government borrowing from the SBP at the end of each quarter. Therefore, net government borrowings from the banking system reached Rs579.7 billion from Rs175.1 billion over the previous year.

However, encouraging considerations occurred in government borrowings from the SBP, the survey said. The government retired Rs532.4 billion to the SBP during July and May against the retirement of Rs10.5 billion in the same period of the last year.

Published in The Express Tribune, June 5^th,  2015.

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