Private Sector Credit Off-take Up 72 Percent In July-December
KARACHI: Private sector credit off-take surged 72 percent to Rs342.57 billion in the first half of the 2015/16 fiscal year as decades-low interest rate whetted the loan appetite of businesses.
The State Bank of Pakistan (SBP) data showed on Wednesday that private sector obtained Rs198 billion of loans from the banks in the corresponding period of the last fiscal year.
The business community is attributing the jump in private sector’s borrowing to lower interest rates.
President Zahid Saeed at Korangi Association of Trade and Industry appreciated the central bank’s decision of keeping the rate at the lower side in the past.
“This stimulates borrowings by private sector,” said Saeed.
At present, interest rate is at a record low of six percent, which was kept unchanged in the last monetary policy.
The decision to keep interest rate on the lower side was due to the marked improvement in the macroeconomic indicators from October 2014 onwards.
The central bank, in its annual report, said the jump in borrowing by private sectors was mainly because of lower interest rates, easing energy shortage, improved law and order situation, considerable improvement in war against terrorism and brightening investment prospect under the China-Pakistan Economic Corridor (CPEC) projects.
Analyst Ahsan Mehanti at Arif Habib Corp attributed the rise in borrowing numbers to a significant decline in interest rate, which gives cushion to businessmen to offset increasing cost of production.
Mehanti believed that this rise emanated from a volatile capital market.
“The investors are giving a preference to traditional markets as capital market is on the downward trend,” he said. “Investors are diverting to industrial activities.”
Analysts said though the environment for business activities is still not favourable due to various factors, but the latest anti-terror and ant-crime operations improved the law and order situation.
Topline Securities forecast that there will be a further improvement in the private sector’s credit as new projects of CPEC will catch development pace.
The power ministry said out of the total $46 billion worth of China-Pakistan Economic Corridor projects, $28 billion of them are to be completed by 2018, which will involve financing of power and infrastructure projects by Chinese and local banks.
This, coupled with other planned power sector projects, is likely to trigger higher borrowing from the banking system, said a securities analyst.
Economist Dr Ayub Mehar said the lending was mainly seen due to increasing working capital requirements of industrial units.
Mehar said the increase in borrowing for private sector will yield result in case the same utilised for the fixed assets.
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