KARACHI: Banks have extended private sector loans for the first 10 months of this financial year as the amount is much higher than the combined interest rate for the past two years.
Recent data released by the State Bank of Pakistan (SBP) has shown that the private sector has borrowed Rs1,235.5 billion by April 22 this fiscal year of approximately Rs415bn over the same period last year. It has been the highest loan loan by the private sector over the past five years.
The progress of the bank in the private sector in July-April 2021-22 was significantly higher than the total loan extended over the past two years. The private sector has borrowed Rs766.2bn from FY21 and Rs196bn from FY20.
The Covid epidemic hit the economy in the FY20 which has slowed down private sector loans to the lowest level in the last five years due to the closure of jobs. Private sector joint loans from FY20 and FY21 amounted to Rs962.5bn.
The situation has completely changed as high private sector borrowing reflects growing economic activity that could help the government achieve its GDP growth goal and the SBP had recently forecast economic growth of between 4 and 5 per cent this financial year.
Also the growth of foreign trade led by import reports and the positive increase in double the number of exports are a sign of rapid economic activity. Big production grew by a record 8.2pc in February.
However, bankers and analysts say the cost of doing business has also increased and could be one of the reasons for higher lending by private businesses to meet their financial needs. Inflation in April was 13.37 percent indicating the cost of production also affected businesses.
‘Investment is growing behind the Temporary Economic Refinance Center (TERF) and high operating demand due to rising commodity prices,’ said the head of research at the Pak-Kuwait Development and Investment Company.
The government has provided low TERF funding to trade and industry to curb the effects of the global epidemic and slow economic growth. Pakistan has also suffered and is still facing a major round of commodity prices in the international market.
This inflation led to a major imports of $ 65.5bn in the first 10 months of this financial year as opposed to $ 44.7 billion in 10MFY21.
Exports increased by 25.5pc to $ 26.2bn in July-April from $ 20.9bn over the same period last year. Some analysts believe that the increase in export revenue is due to higher prices received by Pakistani exporters.
Loans provided by ordinary banks have increased to Rs775.55bn at 10MFY22 as opposed to Rs181.5bn in 2020-21. It shows that regular bank lending to the private sector has quadrupled in the same period last year.
Islamic branches of traditional banks have also increased their lending to the private sector by almost double (91pc) over the previous year. The private sector has borrowed Rs267bn from Islamic branches as opposed to R140 billion over the same period last year.
Islamic banks have also increased their loans by R100 million over 10 months of this financial year. The total amount borrowed from Islamic banks was Rs193bn as opposed to Rs93bn at the same time last year.
Published Parhlo, May 8, 2022