First half FY19: Credit to private sector exceeds record Rs 6 trillion

Credit to private sector posted approximately double-digit growth, crossing the level of Rs 6 trillion at the end of first half of this fiscal year (FY19). The State Bank of Pakistan (SBP) Monday reported that overall credit to private sector posted a healthy growth of 9.5 percent during July-December of FY19. Credit to private sector rose by Rs 521 billion, reaching all-time high of Rs 6.003 trillion in December 2018 compared to Rs 5.482 trillion at the end of June 2018. According to the SBP, credit to private sector includes Rs 238 billion of investment in securities and shares of private sector and Rs 5.765 trillion of loans to private sector.
Economists said increasing economic and industrial activities kept the credit demand strong during the first half of this fiscal year, mainly due to low financing costs offered by the financial institutions.
They said with improved economic activities, banks were also willing to expand their exposure to the private sector due to low credit risk. Banks' non-performing loans as percent of their total loans continued to fall as low financial cost and healthy earnings further improved the corporate sector's loan repayment capacity, they added.
Economists said that on the supply side, banks also have sufficient liquidity to cater for private sector as the government has shifted its borrowing for budgetary support from banks to SBP.
However, they said, with tight monetary policy stance, the pace of credit to private sector may be hurt in the second half of FY19.
With modest price trend most of the demand was witnessed by the manufacturing sector. The SBP reported that credit to manufacturing sector surged by 14 percent or Rs 384 billion to Rs 3.092 trillion in Dec 2018 up from Rs 2.707 trillion in June 2018.
The momentum in working capital loans was particularly visible in a large number of sectors including textiles. Among manufacturing sector, textile ranked first as financing to this sector has crossed one trillion mark at the end of first half of FY19. Outstanding loan of textile sector reached Rs 1.009 trillion in December 2018 up from Rs 807 billion in June 2018, depicting an increase of 25 percent or Rs 202 billion.
The SBP is undertaking efforts to ensure a more balanced distribution of bank loans across sectors and during the last fiscal year, it launched a comprehensive roadmap for the promotion of Small and Medium Enterprises (SME) finance.
The roadmap comprises 9 key pillars, including improving regulatory framework, upscaling microfinance banks and simplifying procedures for SME financing. Similarly, the SBP has also prepared a draft framework for the promotion of low-cost housing finance.