Bank Lending to Private Sector On The Rise

The stable policy and interest rates coupled with growth in businesses have increased the banks loan portfolio to the private sector substantially to Rs. 814 billion, which is likely to set a new record in the months to come.

According to State Bank of Pakistan (SBP), the stock of credit to the private sector grew on a year-to-year basis by Rs. 814.9 billion in October FY18, showing a growth of 18.5 percent as compared to Rs. 436.4 billion (11.0 percent growth) in the corresponding period last year.

Looking into the break-up of this credit expansion, the already buoyant growth in fixed investment gained further traction at a slightly higher level relative to FY17, while both working capital loans and consumer financing showed encouraging trends.

These developments are further supported by the improvement in capacity utilization of major sectors which indicates growing demand.

Due to lower interest rates and moderately sustainable growth in the businesses, banks are comfortable to issue advances/ loans to various sectors aimed at making margins from interest and profit rates.

If the situation of credit uptake by the private sector continues, the banking industry’s lending to private sector may mark a new record, as it made the highest lending record of the decade in the last financial year.

The prospects of the growth are bright as the GDP continued to grow in the past couple of years, backed by output of various industries of manufacturing, trading and services sectors. The GDP is likely to achieve a growth rate of 6% as predicted by the central bank in its recent monetary policy statement.

This happened because of the prevailing low interest rates, which stood at an average of 7.41 percent in the banking industry excluding the special schemes, which are based on much lower interest and profit rates such as Export Refinancing Scheme and Long Term Financing scheme by the central bank.

Conventional banks are lending aggressively to the private sector, with loans’ value increasing to Rs. 560 billion till October. These are followed by Islamic Banks with their financing value surging to Rs. 133 billion. Islamic Banking Division of Conventional banks issued loans worth more than Rs. 100 billion during the period under review.

  • Islamic banks or Islamic windows of conventional banks does loan the money, they rather do financing through provision of goods and services. Kindly rectify the terms used in in write up.

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