Banks’ financing to the private sector has improved with a year-on-year increase of 43 percent, showing an encouraging sign towards supporting the business sector for recovery and expansion.

According to the State Bank of Pakistan (SBP), the private sector borrowing and financing from banks surged to Rs. 357.2 billion in more than eight months of the current financial year against Rs. 249.6 billion in a similar period last year.

The upsurge in the financing from the banks by the private sector showed that businesses are using the investment for meeting short-term and long-term projects whereas some of the businesses are borrowing to revive themselves.

Last year, the SBP slashed the policy rate from 13.25 percent to 7 percent to encourage businesses to utilize banks’ financing, which suffered a crisis due to COVID-19 and its related preventive lockdown.

Besides the rate cut, the banking regulator also offered various subsidized schemes for surviving businesses.

Analysts said that the private sector credit is likely to maintain its upward trend in the coming months due to recovery in economic growth, improvement in business confidence, and expected stability in the interest rates, at least during this fiscal year.

However, the expiration of temporary economic refinance facility and possible restrictions amid resurging coronavirus cases may have some implications on private sector credit offtake, they said. The scheme will expire on March 31.

According to SBP, conventional banking branches disbursed Rs. 174 billion loans to the private sector between July 1, 2020, and March 12, 2021, compared with Rs. 83.6 billion a year earlier.

The private sector credit offtake from the Islamic banks rose to Rs. 71.6 billion from Rs. 50.5 billion. The Islamic banking branches of conventional banks disbursed Rs. 111.6 billion loans to the private sector compared with Rs. 115.4 billion a year earlier.

The private sector credit saw a declining trend in the previous months due to the retirement of working capital loans. Now, it has resumed its expansionary trend owing to an increase in fixed investment and consumer loans amid soft interest rates and SBP’s subsidized refinancing schemes, especially long-term financing facility and temporary economic refinance facility.

Temporary economic refinance facility is providing financing at low rates for investment and is now seeing healthy pick-up as the economy shows signs of revival.

Temporary economic refinance facility has recorded a growth of 13 percent weekly to Rs. 543 billion on March 4 from Rs. 481 billion on February 25, showing a recovery in investment and economic activities.

Recently, SBP revised its economic growth forecast for the current fiscal year at around 3 percent based on hopes the manufacturing sector would continue to perform well.

According to the Pakistan Bureau of Statistics (PBS), large-scale manufacturing grew further by 10.8 percent year-on-year in December 2020 and 9.1 percent in January 2021. Through the first seven months of FY21, large-scale manufacturing has grown by 7.9 percent, compared to a contraction of 3.2 percent during the same period last year, SBP said last week.

The encouraging trend of credit uptake from the banks by the private sector shows a healthy sign for the economy. However, the third wave of Covid-19 seems serious in various parts of the country, which may hurt the economic recovery and growth.

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