KARACHI: Private sector lending from banks – said to be the most important macro indicator – rose sharply more than 65 percent in December 2020, the latest data released by Bank Negara (SBP) show.
The private sector borrowed Rs215.5 billion from banks from July to 8 Jan 2020-21 compared to Rs130.2 billion in the same period last year amid accelerating economic activity. The rebound in December lending emerged as a turning point against the sharp decline – by 88% – witnessed in the previous five months of the current fiscal year compared to the same period in FY20.
In the monetary policy issued on Friday, the SBP said it expects a growth rate of slightly above 2% despite the upside risk.
Several other macro indicators also reflect a sudden spike in bank lending.
The SBP governor recently said that the economic recovery has been ongoing since July and has strengthened in recent months.
Large-scale manufacturing (NGOs) grew 7.4 percent in October and 14.5 percent in November.
The available data do not indicate which sector buys more money from banks, but it is mostly used for working capital.
Another SBP data set shows that manufacturing sector lending totaled Rs1,284.9bn at the end of November FY21.
The manufacturing recovery is also broader, with 12 of the 15 sub-sectors posting positive growth, the central bank said.
One of the reasons for the increase in lending by the private sector was the drastic reduction in interest rates while banks also posted growth in their savings. The SBP cut interest by 6.25 percentage points to 7 percent from March to June 2020, thus encouraging the private sector to benefit from the situation arising from the Covid-19 pandemic.
Banking sector deposits within 12 months increased by 20% in October 2020 year on year, reflecting high liquidity in the banking system. This forced banks to tap into liquidity which resulted in large investments in government papers and increased advances to the private sector.
Banking sector deposits totaled Rs16,664 trillion in October 2020 compared to Rs13,912tr in the same month the previous year.
Bank deposits in the first 10 months of calendar year 2020 have so far grown by 14% – the highest in thirteen years.
SBP data shows that both conventional and Islamic banks have increased their lending to the private sector.
However, Islamic bank lending to the private sector increased rapidly over the last six months from the current fiscal reaching Rs62.3 billion against Rs11.7 billion in the same period of the last fiscal.
Taking out of private sector credit from conventional banks increased to Rs98.2 billion against Rs56.5 billion in the same period last year.
The government has obliged banks to provide loans for cheap housing but no official data is available from the SBP on how much money is being spent on these projects.
However, bankers say lending to the construction industry has increased as activity in the sector increases across the country. This loan is in addition to the cheap housing sector.
“At least three sectors including housing and construction, the automotive sector and exports have shown much better growth than the previous year and they are borrowing from banks,” said a senior banker.
Published in Dawn, January 24, 2021
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