Loans to the private sector increase



Banks’ outstanding credit to the private sector jumped 17% over the past year to reach 9.96 trillion rupees at the end of February as the government’s growth-friendly policies spurred companies to expand production lines despite rising lending rates and inflation.

Outstanding credit to the private sector (advances) stood at 8.52 trillion rupees a year ago in February 2020, according to data from State Bank of Pakistan (SBP).

The government and central bank’s focus on economic activities following the spike in inflation has kept businesses optimistic and encouraged them to invest for expansion and borrow money from financial institutions to manage their day-to-day activities, analysts said.

Outstanding borrowing by textile manufacturers reached 1.43 trillion rupees at the end of February, compared to $1.13 trillion in the same month a year earlier, according to data from the Central Bank of Pakistan.

Borrowing by base metal (mainly steel) manufacturers reached 241.5 billion rupees during the month, compared to 183.43 billion rupees in the same month last year.

The outstanding borrowings of motor vehicle, trailer and semi-trailer manufacturers jumped to about 73 billion rupees from 43.21 billion rupees.

Borrowing by the construction sector (which is mainly involved in residential and non-residential projects) reached 166.9 billion rupees at the end of February 2022, compared to 129.74 billion rupees a year ago.

Outstanding personal loans (mainly for the purchase of houses and cars) rose to 1.030 billion rupees in February from 813.44 billion rupees, according to central bank data.

The increase in borrowing is also reflected in the output of related sectors of the economy. Pakistan’s exports – led by the textile sector – increased by 26% in the first eight months (July-February) of the current financial year to reach $25.1 billion compared to the same period last year. previous year, according to the Pakistan Bureau of Statistics (PBS).

Other companies that continued to report higher production in the current fiscal year in Pakistan include large-scale manufacturing. Its production jumped 7.6% in the first seven months (July-January) of the current financial year 2022 compared to the same period of the previous year, according to Arif Habib Limited (AHL).

Car sales increased 57% to 178,300 units in the first eight months of FY22 compared to the same period last year.

Electricity production increased by 9.3% in the first seven months of the year compared to the corresponding period of the previous year, the research house said.

The latest output figures suggest economic growth would remain high at around 5% in the current fiscal year, analysts said.

They said the major credit growth to the private sector came from the central bank’s subsidized financing program for the country’s industrialization known as the Temporary Economic Refinancing Facility (TERF). The central bank introduced the program in March 2020 to help companies continue to invest in production despite the Covid-19 pandemic.

Companies have borrowed a massive amount of Rs 436 billion under this scheme. The textile sector also remained the largest borrower under TERF after receiving significantly high export orders during the difficult times of the pandemic.

Small and medium-sized enterprises (SMEs) have also tapped TERF to expand their production lines, according to the central bank.

Published in The Express Tribune, March 27and2022.

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