Boosted by 26-month high in textile sector borrowing, private sector credit off-take jumped to Rs67 billion last month, its highest single-month off-take since December 2009.
According to data released by the State Bank of Pakistan, the countrys biggest dollar earning sector, textile, borrowed Rs41.8 billion in November - its biggest since October 2008.
This can be attributed to soaring cotton prices that hit an average of Rs8,800 per maund in November up from Rs7,521 in October, and Rs3,970 in November last year. The rise in cotton prices has pushed the price of 100 bales to Rs3 million from Rs1.5 million in the comparable period, according to Naseem Usmani of the Karachi Cotton Brokers Association.
Quite naturally, spinners had to borrow more to meet their working capital requirements. SBP data show that half of the amount lent to the textile sector last month, was to the spinners who took loans of an astounding Rs26.3 billion that translates into the biggest ever single-month off-take to the sector.
Does this mean that bankers are entirely at the mercy of cotton economy? Well, not likely.
There is little doubt that given the generally bullish outlook of global cotton prices, cotton prices at home will remain uppish, and with that textile players could keep demanding for more credit. But SBP data also reveal that credit to private sector excluding the textile sector has also started to show green shoots.
Private borrowers, other than textile businessmen, took net loans of Rs25.5 billion in November, up from Rs18.3 billion in October, and a net retirement of Rs11.62 billion in the month before. This suggests that credit demand is perhaps starting to pick up, albeit its too early to confirm the hypothesis as of this moment.
In any case, increasing good quality credit portfolio is going to be a tough job for bankers.
The RGST has been delayed, and with that the IMF tranches - meaning that governments reliance on commercial banks will only increase going forward. Hence, further crowding out of the private sector until the time RGST is passed, is on the cards. As for whether the rolling out of RGST given current political developments is concerned, even optimists don see it being implemented in the current fiscal year.
In the meanwhile, pressure will be mounting on the government to start retiring its loans taken from the central bank in order to meet the requirements of the SBP Act that is seen being amended in the second half of this fiscal year.
Indeed, the business of banking is getting tough by the day. How do bankers plan to pull this through; watch out for the Business Recorders special report titled Banking Review 2010 due to be published on December 31.
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