KARACHI: The private sector seems to have increased its
activities despite persistent political uncertainty in recent months,
latest data released by the State Bank of Pakistan (SBP) shows.
The
trend is reflected by the fact that the private sector doubled its
credit off-take in the first five months of the current fiscal year.
The
private sector borrowed Rs112 billion between July 1 and Dec 1, which
is 100 per cent higher than a year ago when its borrowing amounted to
Rs54bn.
Higher borrowing by the private sector reflects
increased economic activities. In its last monetary policy announced in
November, the SBP expressed confidence that the economy would achieve a
6pc growth rate in 2017-18.
The SBP’s third quarterly
report said low interest rates are impacting the profitability of banks
as their yield spread declined and gains on the sale of securities
evaporated. However, their net interest income started picking up pace
led by a 10.5pc increase in interest earned on advances to customers.
Higher
economic activities were also reflected by 57pc growth in foreign
direct investment, although most of it is coming from China under the
China-Pakistan Economic Corridor (CPEC).
“A low yield on
government securities is the real reason for higher advances to the
private sector,” said a senior banker, adding that prospects for higher
growth in the private sector’s credit off-take have increased due to
CPEC-related activities.
The share of interest earned on
advances in total interest earned increased to 42.2pc in the third
quarter of 2017 from 39.5pc last year.
On the contrary,
the share of investment – dominated by low-yield government securities –
in interest earnings reduced to 54.9pc from 57.6pc in the comparable
quarter of 2016. This shows that growing advances (quantity impact) are
offsetting the low interest (price) impact.
Credit to the
private sector was Rs748bn in 2016-17. The recent pace of growth
indicates that it may surpass the last year’s figure.
After
the depreciation of the local currency, exports will likely increase
while exporters, particularly those belonging to the textile sector, can
possibly invest more by means of enhanced bank borrowing.
The
textile sector still has the lion’s share in export proceeds. But it
did not invest in modernising its machinery during the last five years
like Bangladesh and India, making its products uncompetitive in the
international market.
