Financing demand for capacity expansion remains subdued

January 23, 2020 (MLN): Private sector financing demand remained subdued due to muted economic activity as outstanding loans to private sector businesses by the end of December 2019 increased slightly by 2% MoM to Rs.5.4 trillion as compared to the previous month. Whereas, in the month December 2018, it stood at Rs.5.2 trillion, demonstrating only a 4% increase YoY.

Moreover, a slowdown in global economic activity further affected exports and appetite for working capital. The latest data issued by the State Bank of Pakistan (SBP) by type of Financing shows that the outstanding credit to the private business sector for Export financing by the end of December 2019 reached Rs 565.4 billion, jumped by 22% YoY.

Despite government’s various import substitution policies to encourage domestic producers, capacity expansion activities remained subdued as outstanding loans for working capital requirements stood at Rs 2.46 trillion, as compared to Rs 2.41 trillion in Dec 2018.

Meanwhile, loans to private businesses for investing in long term securities (Fixed Investment) stood at Rs 1.79 trillion, while it was Rs 1.73 billion by the end of Dec 2018, depicting a scanty increase of 3% YoY.    

Similarly, outstanding loans for the purchase of inland bills, import bills and foreign bills amounted to Rs 277.8 billion compared to Rs 253.5 billion recorded in Dec 2018. Whereas, outstanding advances to finance private business sector’s imports locked in at Rs 299.5 billion, marking a decline of 7% YoY on the back of government’s numerous measures to restrict imports.  

In terms of size of institutions, Rs 514 billion worth of credit was given to SMEs while Rs 4.9 trillion worth of credit availed by institutions other than SMEs.

The detailed analysis of the data revealed that during the period mentioned above, a larger part of the loans to private businesses were availed by the manufacturing sector (Rs 3.37 trillion ), within which the most active borrowers were the producers of textiles ( Rs 1.1 trillion) followed by the producers of food and beverages (Rs 761.3 billion).

Moreover, Electricity and Gas sector ranked second in financing as outstanding loans to this sector stood at Rs 253.97 billion within which Electric Power Generation, Transmission and Distribution Companies were the most active borrowers with an outstanding amount of Rs 249.12 billion.

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