Telecom sector is one of the largest contributors to Foreign Direct Investment (FDI) in Pakistan. That is they are run through foreign injections, along side, the companies under the sector also borrow loans from commercial banks to meet their capital expenditure related to infrastructure development, which is evident from the fact that local banking system has lent over Rs. 55 billion (in total outstanding amount) so far.
According to the State Bank of Pakistan statistics, telecom companies borrowing from commercial banks reached Rs 55 billion by March 2016, primarily for the expansion of their infrastructure network. However, telecom operators retired an amount of Rs 1.5 billion as loans to banks in the first quarter of 2016 which decreased its loans portfolio from Rs 56.5 billion to Rs. 55 billion.
The central bank pointed out that credit to the telecom companies was seen on the account of local telecom services, long distance, value added projects and expansion of 3G and 4G services in different cities of the country.
Telecom companies usually receive investment from their headquarters for meeting expenses that are beyond their own budgets, for example purchase of licenses. Not to mention Groups or Parent Companies encourage telcos to become self-sufficient in meeting expenses using local banking industry or stock exchange for raising funds.
Therefore, telecom operators generate funds from commercial banks regardless of the fact that some operators own microfinance banks of their own as well. In this regard, the sector gives business to local banks and are considered lucrative clients.
After power sector, telecom sector is the second largest borrower from commercial banks in Pakistan. Not to mention, power sector has so far received Rs 222 billion from banks as loans. Construction and Oil/ Gas were third and fourth major borrowers with Rs 23 billion and Rs 15 billion loans.
State Bank of Pakistan (SBP) indicated in its report that borrowing from commercial banks is likely to increase in the second quarter of 2016 as a handsome amount of loans have been sanctioned to telecom operators in this period.
Going forward, telecom operators are keen to borrow from local banks since interest rates are at record low levels.
Banks and Development Finance Institutions (DFIs) have provided a major part of the credit for financing infrastructure projects in the private sector, helping build infrastructure in the country.
By the end of March 2016, amount outstanding against infrastructure sector reached Rs 444 billion, witnessing growth of Rs 75.6 billion or 20.5% as compared to the preceding quarter of October to December 2015 as per SBP.