July saw the biggest decline in private sector lending since November 2008. The Rs49 billion drop came despite an increase of Rs52 billion in total credit as the government continued to borrow from both the scheduled banks and the State Bank - elbowing out the private sector.
Net government borrowing from scheduled banks rose by Rs46 billion while borrowings from the central bank increased Rs 61 billion during the period. The eight-month high in private sector credit decline comes contrary to the wide spread talks, both at local and foreign forums, about the revival of Pakistans economy.
The gloom prevails in private business across the board as the overall manufacturing sector credit declined by Rs28 billion (2%) in first month of this fiscal year. Credit to food products and beverages businesses took a massive hit - falling 8 percent (Rs17 bn) in July to Rs187 billion, whereas personal loans decreased by Rs4.8 billion (1.3%) in July, in line with the average decline of Rs4.7 billion seen in the last fiscal year.
Interestingly, loans to bank employees continued to mount in contrast to global trends where there are talks to cut the bonuses of bankers. SBP data shows that credit facility to bankers jumped to Rs70 billion (20% of total personal loans) in July, after rising 17 percent in FY09.
Meanwhile, the deposits of scheduled banks increased by Rs33 billion but instead of converting them to loans, the banks invested nearly double that amount (Rs66 bn) in government securities. Little, of course, was left for the private sector.
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