Credit to private sector falls: SBP

The State Bank of Pakistan has said that growth of credit to the private sector was slightly lower, at 3.4 percent, during Jul-May period of fiscal year 2010-11 compared to 3.6 percent over the same period of FY10, and that there is hardly any credit demand for new investment activities in the economy. According to SBP Third Quarterly Report, working capital loans during Jul-Apr 2011 jumped to Rs 144.7 billion, against Rs 47.4 billion in the corresponding period of FY10.
Current three-fold increase in demand for working capital loans was due to the rise in raw material prices, especially of cotton, sugarcane and edible oil. In addition, both textile and sugar sectors accounted for 68.5 percent of the rise in working capital loans over the period of analysis, the report said.
The surge in exports increased the demand for trade loans, which increased by Rs 68.0 billion during Jul-Apr 2011 compared to Rs 21.0 billion in the previous year. The sectoral distribution of trade loans reflected the dominance of the textile sector, which accounted for 71.6 percent of the current rise, the report said. According to the report, compared to the significant increase in working capital and trade loans, the fixed investment component saw a nominal increase of only Rs 1.7 billion against an expansion of Rs 62.0 billion over the same period of previous year. Monthly data indicated net retirement of investment loans in 6 out of 10 months of the fiscal year and this would not bode well for the economy, the report observed.
Compared to slow growth in credit for businesses, consumer loans witnessed net retirement for a third year in succession, while the share of consumer financing in private sector loans declined to 7.7 percent in April 2011, as compared to 9.1 percent as of end-June 2010. In absolute terms, consumer loans witnessed net retirement of Rs 21.8 billion in Jul-Apr 2011 against Rs 44.4 billion in the previous year. This slowdown in net retirement was largely because banks were reluctant to provide fresh loans, while outstanding loans continued to be paid off, the report said.