Bank loans to growth-oriented private sector plunge by alarming 87pc

Prospect for economic growth in the economically-troubled country seems to be bleak as banks’ advances to growth-oriented private sector are nose-diving as low as 87 per cent during five months of current fiscal year. As a standard practice banks are supposed to extend more and more loans to the private sector which worldwide is recognised as engine of growth that through generating economic activity ensures economic growth in a country.
This, however, is not the case in Pakistan as central bank, in its Monetary Policy Decision for December-January, also noted with concern that risk-averse banks’ credit to private businesses was so far “muted”. State Bank reported that between July-November 25 banks had lent only Rs6.570 billion to the private sector compared to Rs52.534 billion of the corresponding period last year. This marks a huge slump of 87.4 per cent or Rs45.964 billion in the banks’ advances to private borrowers. On the other hand, commercial banks are extending extensive loans to the cash-strapped federal and provincial governments through investing massively in risk-free government securities including Market Treasury Bills, Pakistan Investment Bonds and Ijara Sukuk. According to SBP figures, during the review period banks credited a mammoth sum of Rs700.771 billion to the cash-starved government. This amount is higher by 130 per cent or Rs396.701 billion when compared with Rs304.070 billion of last year’s corresponding time.
Of total bank advances to thee government, over Rs634.65 billion were extended by scheduled banks and Rs65.979 billion were lent by central bank. This huge lending in government papers is fetching heavy dividends for the banks that counted their net domestic assets (NDA) higher at Rs198.568 billion during July-Nov FY12 against Rs192.543 billion of FY11. Further, the banks’ net foreign assets (NFA) kept monetary expansion in the country low at 1.32 per cent or Rs88.111 billion in monetary terms. Last year, same period had seen broad money, also called M2, expanding to 4.53 per cent or Rs261.643 billion. SBP reported that the currency in circulation was lower at Rs152.064 billion against last year’s Rs237.724 billion with the banks’ total demand and time deposits also setting in the red zone at negative Rs62.686 billion compared to FY11’s positive Rs22.553 billion.
Economic observers warn that with much of bank finances being eaten up by public sector for non-productive purpose of running the government, the country was likely to miss out on its 4.2 per cent GDP growth target for the current year. Analysts suggest that banks’ advances must go to private borrowers who, through generating economic activity, create jobs that would lead to economic growth in the poverty-hit country.