Pakistan’s private sector is set to expand its existing and new businesses aggressively through low mark-up loans, which crossed Rs. 250 billion in the first half of financial year 2017-18.
According to the State Bank of Pakistan (SBP), the banks’ credit to private sector grew to Rs. 253 billion in the period of July to December 2017. In routine phenomenon, the credit value of the banking industry increased by Rs. 115 billion in the closing week of December 2017, totaling Rs. 253 billion.
The stable policy and interest rates, coupled with the growth in businesses, have increased the banks’ loan portfolios to the private sector substantially.
Banks’ credit to private sector was not that aggressive in FY 2017 compared to 2016.
Credit to private sector was higher than around Rs. 100 billion in the similar period during last fiscal year. In the same year, credit uptake of private sector witnessed a record high at Rs. 747 billion.
Analysts said that private sector lending will pick up the pace in the remaining six months of current financial year, especially in January 2018 especially in various sectors including manufacturing, trading and service.
SBP commented in its last report of monetary policy:
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.
The prospects of growth are bright as the GDP continued to grow in the past couple of years, backed by output of various industries. 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 the low interest rates stood at an average of 7.41 percent in the banking industry, excluding especial 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. 182 billion till December. These are followed by Islamic Banks financing worth Rs. 26.5 billion. Islamic Banking Division of Conventional banks issued loans worth more than Rs. 44.5 billion during the period under review.