Demand for credit shows robust growth for expanding working capital

March 14, 2019 (MLN): Net credit off-take by the private sector as of January 2019 reached Rs 5.1 trillion out of which Rs2.4 trillion was borrowed for expanding working capital (short-term) and Rs 1.74 trillion was for fixed investment (long-term).

Despite interest rate hikes, private sector’s borrowing witnessed an increase due to the fact that the private sector utilizes bank loans mainly as a fixed investment for the expansion of their businesses and operations and for increasing working capital.

Due to high economic activities in the prevailing scenario of economic growth coupled with meeting futuristic development goals in line with China Pakistan Economic Corridor (CPEC), demand for credit is still robust for project financing and working capital.

According to the SBP data, private sector advances for export financing as of January stood at Rs 480 billion, whereas for import financing it recorded at Rs 312 billion. Moreover, off-take for bills purchased & discounted stood at Rs 252.5 billion.

The data also shows that the bank’s loans to SMEs reached to Rs442.6 billion, whereas advances to entities other than SMEs stood at Rs 4.7 trillion by the end of January FY19.

However, it is worth mentioning that most of Pakistan’s SMEs are in the informal sector, moreover many SMEs fail to meet borrowing prerequisites; that is why bank financing to SMEs is so low despite high annualized growth rates.

The SBP keeps pushing banks to lend more to SMEs and has even put in place a comprehensive set of prudential regulations for this purpose.

As large-scale manufacturing is growing, agricultural growth prospects are not dim, exports are growing, export-oriented industries are producing more goods, the SME sector is to be streamlined, these are some factors that should keep demand for private-sector credit high during this fiscal year and beyond.

Copyright Mettis Link News