KARACHI: Bank lending to private sector companies rose 18.2 percent year-on-year to 6.431 billion rupees in January, central bank data showed on Friday.
Those loans were $6.573 billion in December, down 2.1% month-on-month.
The increase in private sector financing was driven by strong demand for working capital loans from major sectors, particularly manufacturing, where the largest borrowers were textile producers.
Lending to the manufacturing sector rose to 4.180 billion rupees in January from 3.373 billion rupees in the same period a year earlier. Textile companies secured 1.426 trillion rupees from banks, up from 1.126 trillion rupees last year.
Banks lent 958.8 billion rupees to food manufacturers in January. This compared to Rs827.7 billion last year.
Private sector advances were on an upward trajectory. Recovering economic activity and rising input prices have increased demand for working capital loans from businesses.
The refinancing programs introduced by the State Bank of Pakistan (SBP) during the pandemic have also helped to increase the appetite of private borrowers for bank loans.
The SBP introduced TERF in 2020 as part of its economic support measures for Covid-19. It was a concessional refinancing facility designed to promote new and expansion and/or balancing, modernization and replacement investment.
The rates for these schemes are not linked to interest rates, which have increased by 275 basis points since September 2021. The key rate hovers at 9.75%.
In addition, housing finance and auto finance also led to an increase in bank lending.
In July 2020, the SBP also asked banks to increase their housing and construction finance portfolio to at least 5% of their advances from the private sector by December 2021, failing which they would face sanctions. This, coupled with higher disbursements under the Mera Pakistan Mera Ghar scheme, also boosted overall construction and housing financing. The SBP recently raised the mandatory target for housing and construction finance to 7% by December 2022.
However, the International Monetary Fund, in its latest report, warned that the expansion of refinancing programs, if not temporary, would undermine the SBP’s efforts to credibly implement monetary policy, achieve its goal. principle and improve the transmission channels of monetary policy.
“Already before the crisis, the SBP had expanded refinancing programs to address large credit gaps and long-standing market failures. It has further expanded these since March 2020 by (i) establishing three new temporary facilities, one of which is still being disbursed; (ii) extension of existing ones, including in recent months; and (iii) the introduction of a new facility for SMEs,” the IMF report states.
At the end of September 2021, the outstanding amount of all facilities was Rs 1,225 billion (15.5% of private credit), of which Rs 322 billion was related to temporary Covid-19 schemes, he said. added.