Bank Loans to Private Sector Show Massive Growth of 284% in H1FY19

Despite a steep surge in interest rates, commercial bank lending to the private sector has shown a significant growth of 284 percent in the first six months of the current financial year 2018-19.

According to Statistics updated by State Bank of Pakistan (SBP), loans from commercial banks to multinational companies, local corporations, small and medium-sized enterprises, auto and housing finance, and etc increased to Rs. 384.4 billion during the period of July to 26 December, 2018.

Last year, these commercial bank loans to the private sector stood at Rs. 102.793 billion.

The growth in the bank borrowing by the private sector implies an expansion in business and industrial activities at the local level. Loans from the banking system are being borrowed for long-term plans despite the fact the cost of investment went up on the back of increasing interest rates.

It is pertinent to mention here that bank loans to the private sector have shown consistent growth during the past two financial years. These went up to Rs 747 billion in FY17 and Rs. 775 billion in FY18 – a decade high record and an all-time high level in the history of the banking sector.

SBP’s annual report FY18 commented on this growth stated that,

Businesses continued to take long-term positions and borrowed considerably from banks to finance their capital expenditures. Fixed investment loans increased in textiles, cement, sugar and power continued to increase/upgrade their capacities.

It is important to note that despite a reversal in SBP policy rate, end-user mark-ups for LTFF and EFS were unchanged during the year. Textiles continued to borrow for its BMR activities at attractive rates on SBP long-term refinance schemes such as LTFF, which were offered at 5 percent rate to the sector.

Bank lending to the public also went up on account of consumer financing including auto and housing financing.

Among the borrowing by the banking sector, conventional banks’ credit to the private sector increased to Rs. 294 billion in the period of July-December as compared with Rs. 53 billion.

Islamic Bank financing to the private sector also went up to Rs.54 billion in the same period as against Rs. 12 billion in the same period last year. Islamic banking branches of conventional banks made financing of Rs. 45 billion in the first half of FY19 as compared with Rs. 37 billion in the last year.

The interest rate for different sectors remained between 9 to 12 percent during the period.

Bank loans to industries and the public might go up in the coming months, however, the fresh hike in the policy rate may slow down the growth of credit uptake by the private sector.