Bank Loans to Private Sector Reach Record High in FY18

The banking industry’s credit to private sector reached a record high of Rs 768 billion in the closing financial year 2017-18, mainly due to the demand of fixed and running investment by various corporations.

According to the State Bank of Pakistan (SBP), conventional and Islamic banks’ credit to the private sector increased to Rs 768.252 billion in FY18 as compared with Rs. 747.926 billion credit values recorded in the last financial year, showing an increase of Rs. 2.7 percent (Rs. 20 billion) in values.

This year, the banking industry even surpassed the credit value from the last financial year despite of the fact that policy rates were revised up twice by 25 bps and 50 separately in the second half of the FY18.

Breakup of the figures detail that the credit to private sector by banks stood at Rs. 253 billion in the first half of FY18 whereas the credit value stood at Rs. 515 billion in the second half of FY18.

Bank credit is the amount of funds paid and committed to a customer—company and individual — in the form of loan, which are released in installments on the ability of repayment by borrowers.

The private sector is utilizing bank loans mainly as a fixed investment for the expansion of their businesses and operations in the prevailing scenario of economic growth coupled with meeting futuristic development goals in line with China Pakistan Economic Corridor (CPEC).

According to SBP’s recent report, the fixed investment lending represented a 12-year high in the closing financial year.

Major sectors include textile, cement, power, fertilizer, transport and communication.

The consistent rise in lending credit to the private sector is not only a healthy indication of macroeconomic stability but it is also lucrative for the banking sector to earn interest margins from different segments of customers other than the government.

Commercial banks credit to private sector grew to Rs. 541 billion in FY18 as compared with Rs. 511 of FY17, showing a growth of 5.8 percent.

Islamic Banks’ financing to private sector decreased to Rs 104 billion in FY 187 from  Rs 139 billion in the FY17, reflecting a negative  growth of 25 percent. The financing made by Islamic banking division of commercial banks also reported growth of 25 percent to reach Rs 122 billion in FY18 from Rs 97 billion in FY17.

The credit to private sector does not include specialized financing and lending schemes of the government for specific sectors.

Credit to Non-Govt Sector Crosses Rs. 1 Trillion

Credit to Non-Government sector crossed the mark of Rs. 1 trillion. This includes credit to private sector.

The credit to Public Sector Enterprises includes Pakistan Steel, Pakistan Railway and PIA which stood at Rs. 246 billion.

The credit to Non-Government sector also includes Non-Banking Financial Institutions which stood at Rs. 1.69 billion in FY18. In FY17, the credit to Non-Government sector stood at Rs. 998 billion.