The fortnight ended on September 26, 2009 recorded a rise in corporate borrowings, amounting to some Rs 50 billion, but the borrowings were concentrated in the public sector enterprises (PSEs) where credit utilisation rose by about Rs 76 billion between 12 and 26 September, 2009.
The State Bank did not release the information for the week ended on 19 September, 2009 for unknown reasons. However, the heat generated by the PSEs credit offtake during the fortnight was dissipated quite a bit by retirement of about Rs 26 billion by the private sector during this period, with the overall retirement figure of the sector during the year to 26th September reaching to a record Rs 95 billion.
This reversed the trend witnessed for the week ended on 12th September when the sector had made a fresh borrowing of Rs 13 billion with overall retirement squeezing to under Rs 69 billion. At this moment, we could only say that the behaviour exhibited by the private sector was rather erratic--neither supporting nor belying the underlying truth about the supposed reversal of the year old recession-as it is the case elsewhere in the world.
It would be interesting to visit an article by BR Research (BR October 8) which finds persistence of recessionary trends in the economy unleashed by the yet to control fiscal slippages. But how come if private sector is being crowded out by the government, it should be willing to retire more and more credit contracted earlier on. If that was the case it should have been holding on to credit already availed. In fact, it is retiring matured debts and not going for fresh loans, thus providing liquidity for the credit-hungry government sector and the PSEs.
And although the latter competes with the private sector on credibility scale, the PSEs have only become the best bet for banks because, on net basis, the private sector is not bidding for bank money. It appears that the supposed reversal of recession is made out to be by interpreting persistent bull-run on the stock market for the last about a couple of months which, in effect, is not the result of improved industrial activity or consumption in the economy but, instead, occurring on the back of SCRAs changes in which translated into a quantum jump in foreign investment in Pakistani stocks confirmed also by Chairman of FBR in an interview with Aaj TV.
It will be of interest to mention here that the central bank on October 1, 2009 had injected over Rs 60.2 billion into the banking system through an open market operation, including Rs 43.7 billion for nine days at a rate of 12.26 percent, and another Rs 16.5 billion for two days at the rate of 12.7 percent, ostensibly to stave off the obtaining liquidity crunch in the market. This pumping in operation should have an impact on corporate credit scenario in the forthcoming financial week ending on 3rd October and also in the subsequent week.
How will the central bank ensure this injection finds its way into the private sector rather than ending up in government hands or pseudo government, pseudo corporate PSEs, will be interesting to see. Such big injections do not augur well for deposit mobilisation by banks who finished 2008-09 as sluggish mobilizers of funds and continue following the same sluggish attitude through FY10 so far. The only positive sign is to be found in the surge in RFCDs. But these are largely of automatic character and are determined by the behaviour of Pakistanis working abroad and the consumption pattern of beneficiaries rather than toilsome efforts of the development staff of banks.
As pointed out in BR's above article, and borne out by SBP data, surge in government borrowing during the fortnight continued unabated and it soared to Rs 177 billion on 26th September from Rs 160 billion on 12th of it with budgetary borrowings and borrowings for commodity operations both registering increases of Rs 17 billion and Rs 1 billion respectively.
Fresh Zakat receipts during the period under the head 'others', however, depressed the total by about Rs 1 billion. The other welcome sign was that State Bank's share in budgetary borrowings declined from Rs 88.5 billion (54 percent) to Rs 60 billion (33 percent) despite increase in the overall quantum and that of the scheduled banks rose from Rs 76 billion (46 percent) to over Rs 121 billion (67 percent). The aforementioned open market operation, effected on October 1, may, however, again disturb the share.
All in all, after accounting for settlement of about Rs 13 billion of other liabilities under OINs during the period, overall NDA posted an increase of over Rs 90 billion during the preceding fortnight.
With depletion of NFA being limited to only about Rs 1 billion, money supply during the fortnight under report improved by about Rs 89 billion to Rs 51.6 billion on 26th September from minus Rs 37.2 billion on 12th September. Both currency in circulation and deposit money shared the increase in equal proportions.
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