LAHORE: The Private Sector Credit (PSC) continued witnessing a decelerating trend during 2024, demonstrating an expansion of Rs188 billion (a YoY growth of 1.0 percent) against the expansion of Rs 300 billion (an increase of 5.0 percent) during the same period last year.
It may be noted that the PSC had increased by Rs 208 billion (a growth of 2.3 percent) during FY 2023, against borrowing of Rs 1330 billion (a growth of 17.4 percent) in FY 2022.
According to the Economic Survey of Pakistan, the deceleration in PSC is due to slow economic activities, an uncertain economic environment, and high borrowing costs—besides an increase in the policy rate, the rates on the Export Finance Scheme (EFS) and Long Term Finance Facility (LTFF) were linked with the policy rate.
During July-March FY 2024, within PSC, private sector businesses’ credit demand increased by Rs 307.8 billion compared to Rs 271.1 billion during the same period last year.
Within total loans, the manufacturing sector has availed the highest share of total loans, amounting to Rs 294.7 billion (96 percent of loans). For the manufacturing sector, rice processing and manufacturing of sugar have availed Rs 52.4 billion and Rs 193.3 billion, respectively, leading the growth in working capital loans – which has observed expansion of Rs 275.7 billion during the period under review against borrowing of Rs 113.3 billion in the last year.
However, the demand for borrowing under fixed investment loans was lower at Rs 47.2 billion in July-March FY 2024, compared to an off-take of 147.5 billion in the same period last year. High borrowing costs, import restrictions on raw material and plant and machinery, weak medium-term business prospects, lack of clarity on the policy front due to political uncertainty, and rationalization of subsidized LTFF contributed to this sluggish trend.
After linking the EFS and LTFF rates with the policy rate, there is a significant decline in credit demand for both schemes loan due to the high cost of borrowing, the Economic Survey added.
So far as consumer loans are concerned, they have followed a declining path during July-March FY 2024, with auto loans having a dominant share in the total portfolio historically. Housing and construction finance also declined amid a rise in the cost of production, rising domestic policy uncertainty, and a slowdown in construction activities.
Copyright Business Recorder, 2024
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