Bank lending to the private sector shows upward trend
Bank lending to the private sector has turned positive for
the first time in the current fiscal year, signaling an improvement in economic
activities. According to the State Bank of Pakistan (SBP), the private sector
borrowed Rs98.73 billion in the week ending December 22, 2023, bringing the
total bank lending to the private sector to Rs9.22 trillion and pushing net
borrowing into positive territory. The total borrowing figure was Rs9.17
trillion at the end of the previous fiscal year and had remained below that
level until last week.
The data reveals that the total net borrowing during this
fiscal year stood at Rs57.8 billion as of December 22, although still
significantly below the Rs267.2 billion net borrowing in the comparable period
the previous year.
Private
sector faces continued negative bank lending amid economic challenges
During the previous fiscal year, economic contraction
occurred, primarily due to poor bank lending to the private sector, totaling
Rs208 billion compared to Rs1,329 billion in FY22 due to political and economic
uncertainty.
Until December 15, 2023, the situation was not encouraging,
despite some stability in the exchange rate, successful negotiations with the
IMF, and a sharp contraction in the current account deficit. From July 1 to
December 15 in FY24, the State Bank noted a net debt retirement of Rs41 billion
by the private sector. However, the trend changed after December 15.
Despite the positive shift, the cost of borrowing remains
high for the private sector, with the key interest rate held at a historic high
of 22 percent since the start of the current fiscal year. Traders and industrialists have expressed concerns about survival due to unprecedented
lending costs and high inflation at 29 percent.
Dr
Ishrat urges Pakistani banks to expand their lending to multiple sectors
Bankers mention that banks are reluctant to lend to the
private sector due to fears of increased defaults and prefer to invest their
liquidity in risk-free, high-yielding government papers.
Despite the higher cost of production, exports increased by
5 percent during the first six months of FY24. However, exporters note that the
elevated production costs have diminished their profit margins.
Conventional banks' lending remains limited, with borrowing
from these banks totaling just Rs1.76 billion compared to Rs349.8 billion in
the same period last year. Commercial banks, traditionally at the forefront of
lending to the private sector, have shown hesitation, reflecting increased
doubts about the private sector's performance.
In contrast, Islamic banks demonstrated resilience, with a
net outflow of Rs38 billion for the private sector during this period compared
to Rs50.9 billion in the same period last year. The Islamic banking branches of
conventional banks, although opposite to the previous year's performance, were
on the right track, with lending to the private sector at Rs17.9 billion during
1HFY24, compared to a net debt retirement of Rs133.5 billion in the same period
last year.
Source: Dawn