Bank loans to the private sector exceeded the Rs. 1 trillion mark in the current financial year. This is the first time the banking industry has achieved this mark during the first nine months of a financial year.
According to the State Bank of Pakistan (SBP), the credit to the private sector escalated to Rs. 1.035 billion during the period of July to March 25 as compared to Rs. 449 billion reported in the similar period of the last financial year, showing a staggering growth of 130 percent year-on-year or Rs. 585 billion from the last year.
The reopening of the businesses after COVID-19, expansion of different sectors, and government concessionary financing schemes have swelled the demand of banks credit from the private sector, depicting a healthy economic trend.
Banks’ lending to the private sector grew under the SBP’s Temporary Economic Refinance Facility (TERF) and Mera Pakistan Mera Ghar (MPMG) Scheme, and consumer financings such as auto and personal loans.
Besides, Large Scale Manufacturing (LSM) showed a growth of 7.6 percent year-on-year. The scale of working and fixed capital of various sectors along with input costs also rose which enhanced the appetite for banks loans in the private sector.
The major sectors that showed positive growth during the period include textile, leather, cement, chemical, iron and steel, automobile and beverages.
With three months left in the current financial year, commercial banks’ credit growth is likely to climb further. The accumulated credit to the private sector made by commercial banks over the past many decades stood at the all-time high level of Rs. 7.6 trillion by end of March.
The credit growth is projected to be 15.4 percent by the end of the financial year 2021-22, largely in line with the projection range of 15 to 17 percent for FY22. However, credit growth in the next financial year is expected to be moderate and fall in the range of 10 to 12 percent, partly due to the absence of the SBP’s TERF in FY23, which was a major catalyst in credit growth during the last two financial years.
According to the SBP, conventional banking branches made lendings of Rs. 645 billion during the period from July to March 25 as compared to the credit value of Rs. 244 billion to the private sector. Financing from Islamic banks also jumped from Rs. 83 billion last year to Rs. 152 billion this year. Islamic banking branches of conventional banks provided credit to the tune of Rs. 228 billion during the period under review as compared to Rs. 121 billion loans to the private sector last year.
The credit growth to the private sector from the commercial banks will help them increase the income driven through financing or markup which will contribute to their profitability positively during the current year.
The government has made a retirement of Rs. 312 billion to the central bank whereas it borrowed an amount of Rs. 1.1 trillion from the scheduled bank on account of budgetary support.
The former spokesman for Adviser to Prime Minister on Finance and Revenue Muzammil Aslam said various policies such as textile and SMEs policy have attracted businesses and industries to enhance their borrowing from commercial loans along with incentives.
He added that various COVID-19 related financing schemes also significantly helped companies of various sized to maintain growth in their businesses despite the challenges.
