Banks lend Rs. 400b to NBFIs during Q1 FY25
As private sector debt declines,
banks have increasingly directed lending toward non-bank financial institutions
(NBFIs), setting a record of Rs400 billion in loans during the first quarter of
the current fiscal year (FY25).
NBFIs, which offer various financial
services without holding banking licenses, play a critical role in Pakistan’s
financial landscape. Recent data from the State Bank shows credit flows to
NBFIs reaching Rs399.86 billion from July 1 to October 11, representing 91% of
the total loan stock for NBFIs, which stood at Rs441 billion as of June 30,
2024. This surge follows a net debt retirement of Rs71 billion by NBFIs in
FY24, compared to Rs144.7 billion in credit during FY23.
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Although NBFIs account for only 5.8%
of the financial system’s asset base, the sector has shown steady growth,
providing essential non-bank financial services. In CY23, NBFIs operated within
a challenging economic climate, marked by high interest rates, inflationary
pressures, political uncertainties, and external imbalances.
Analysts highlight that asset
management—a dominant segment within the NBFI sector—attracted significant
liquidity and posted robust profits in CY23. The sector grew by 34.5%, with
asset management holding 89.6% of NBFI assets. The segment’s asset base
expanded to Rs3,089 billion, rising 39.6% in CY23, driven by growth in mutual
funds and portfolios, particularly Islamic income and money market funds.
Assets Under Management (AUM) saw a
notable 43.7% increase in CY23, reinforcing the NBFI sector’s asset share.
Mutual funds, which comprise 64.7% of NBFI assets, grew 41.8%, fueled by the
strong performance of the equity market, enabling NBFIs to generate returns
despite elevated interest rates. Since June 2024, the State Bank has reduced
the interest rate from 22% to 17.5%, with further cuts anticipated in the
upcoming monetary policy on November 4.
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The NBFI sector encompasses various
entities licensed by the Securities and Exchange Commission of Pakistan,
including investment finance companies, leasing, housing finance, venture
capital, asset management, and non-bank microfinance providers.
In the equities market, Topline
Securities reported Monday that mutual funds acquired shares worth $61 million
as of October 25, marking the highest monthly net buying since April 2018.
Source: Dawn