FRIDAY DECEMBER 21: Economy still in recession: SBP's development finance review

KARACHI: The country's economy is still in recession with challenges such as energy crisis, decline in investment and poor law & order, said the Sate Bank of Pakistan (SBP) in its quarterly development finance review. According to the report issued on Thursday besides, the government's difficult financial position and dwindling Foreign Direct Investment (FDI) remained critical areas of distress for the economy.
At the end of June-12, when compared with the preceding quarter, there was an increase of 1.9 percent cumulative Development Finance (DF) portfolio which was primarily driven by agricultural and infrastructure sectors. The overall stocks of the DF reached Rs 799 billion as on June 30, 2012 compared to Rs 784.2 billion at end of March 2012. However, YoY basis, the DF portfolio witnessed a decline of 3.4 percent due to SME sector, it said and added that while SME and housing finances continued to decline, agricultural credit and microfinance recorded positive growth on quarterly and yearly basis. In addition to these factors, the decline in aggregate DF is also owed to both demand and supply factors, it added. On YoY basis, outstanding advances under the DF stood at Rs 827 billion in June 2011.
On the supply side, banks' risk appetite remained subdued, particularly given the opportunity offered by aggressive government sector borrowings. Similarly, the demand was constrained by the unfavourable economic conditions, it added. Interestingly, the combined number of DF outstanding borrowers saw a growth of 3.5 percent on QoQ basis primarily led by agricultural sector, which stands at 11.6 percent, ie, inclusion of 0.5 million micro borrowers. Furthermore, all other DF sectors witnessed decline in their number of outstanding borrowers.
Moreover, on YoY basis, the number of outstanding DF borrowers rose by 1.7 percent mostly attributed to agricultural and microfinance sectors and the rise in microfinance borrowers can be attributed to the use of alternative delivery channels and in particular the branchless banking, the report said.
Statistics regarding aggregate Non-Performing Loans (NPLs) of the banks & DFIs depicted a rise of 2.2 percent on QoQ basis, primarily driven by the agriculture and infrastructure sectors. Moreover, on YoY basis, the rise in DF NPLs was recorded at 3.6 percent mainly attributed to infrastructure project financing. However, the NPLs of agricultural sector saw a decline of 1.6 percent on YoY basis. Of the total NPLs of DF sectors, SMEs share stood at 57.3 percent, agricultural sector 20.6 percent and the remaining 22.2 percent pertained to the remaining DF sectors, the report said.