Credit to the private sector increases


Banks’ outstanding loans to the private sector rose 17% last year to Rs.9.96 trillion at the end of February as the government’s pro-growth policies encouraged companies to expand production lines despite rising lending rates and rising inflation figures.

The outstanding loans to the private sector (advances) stood at Rs. 8.52 trillion a year ago as of February 2020, according to State Bank of Pakistan (SBP) data.

The government’s and central bank’s focus on economic activity following the peak in inflation numbers has kept businesses optimistic, encouraging them to invest in expansion and borrow money from financial institutions to conduct day-to-day operations, analysts said.

Garment manufacturers’ outstanding loans rose to Rs.1.43 trillion by the end of February, compared with $1.13 trillion in the same month last year, according to data from the Bank of Pakistan.

Borrowing by producers of base metals (mainly steel) rose to Rs. 241.5 billion in the month compared to Rs. 183.43 billion in the same month last year.

The outstanding loans of manufacturers of motor vehicles, trailers and semi-trailers rose to around Rs.73 crore compared to Rs.43.21 crore.

Borrowing of the construction sector (mainly involved in residential and non-residential projects) increased to Rs 166.9 billion by the end of February 2022 compared to Rs 129.74 billion a year ago.

Outstanding personal loans (mainly for house and car purchases) rose to Rs 1.03 trillion in February, compared with Rs 813.44 billion, central bank data showed.

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

Large-scale manufacturing was among the other companies that continued to report higher production in Pakistan during the current fiscal year. According to Arif Habib Limited (AHL), production increased by 7.6% in the first seven months (July-January) of the current fiscal year 2022 compared to the same period last year.

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

According to the research house, electricity production rose by 9.3% in the first seven months of the year compared to the same period last year.

The latest production numbers suggest economic growth will remain strong at around 5% in the current fiscal year, analysts said.

They said the large growth in lending to the private sector was due to the central bank’s subsidized financing program for the country’s industrialization, known as the Temporary Economic Refinancing Facility (TERF). The central bank launched the program in March 2020 to help companies continue to invest in manufacturing despite the Covid-19 pandemic.

The companies have borrowed a massive Rs 436 billion under the scheme. The textile sector remained the leading borrower under TERF after receiving significantly high export orders during testing times of the pandemic.

According to the central bank, small and medium-sized enterprises (SMEs) also used TERF to expand their production lines.

Published in The Express Tribune, March 27th2022.

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