Bank Credit to Private Sector in 2021 Was the Highest in 10 Years

Borrowing from banks by the private sector mainly to invest in businesses surged to a remarkable level of over Rs. 1 trillion in the calendar year of 2021.

According to Prime Minister Imran Khan, credit to the private sector by banks surged to over Rs. 1.138 billion in 2021 — the highest in the last 10 years.

He said, “Private sector credit offtake of Rs. 1,138 billion in the calendar year 2021, is the highest in [the] last 10 years. It shows increasing private sector confidence and investment and strong growth momentum in the economy.”

The staggering growth in the uptake of credit to the private sector shows the reopening of the businesses in the economy while the borrowing is a part of the investment either for the expansion or for the recovery of the businesses by corporations of various sizes.

The private sector made banks extensively borrowing during the period when the interest rates were relatively low whereas a majority of the companies availed specialized low markup schemes of the government in the outgoing year.

Besides, major credit disbursements were made through schemes such as Temporary Economic Relief. Credits were also recorded significantly higher in consumer segments including housing and auto loans.

The State Bank of Pakistan (SBP) usually updates the data on the basis of the financial year. Accordingly, the credit to the private sector surged to Rs. 715 billion during the period of July to December 2021 which is five times higher than the similar period of the last financial year.

The conventional banking system made the highest credit offtake of Rs. 498 billion followed by the Islamic banking divisions of conventional banks with Rs. 132 billion, and Islamic bank with Rs. 84 billion respectively.

After the revision of the policy rate to 9.75 percent, it is likely that credit to the private sector may slow down in the coming future.