February 26, 2019 (MLN): Private sector’s outstanding loans by the month of January 2019 declined by 0.04% to Rs.5.762 trillion as compared to the previous month. Whereas, in the month of January 2018 it stood at Rs.4.78 trillion, demonstrating a 20% increase YoY.
The latest data issued by the State Bank of Pakistan (SBP) shows that the credit to the private business sector dipped by 0.21% to Rs5 trillion which was Rs 5.1 trillion by the end of the previous month. It is important to note that private sector borrowing is a function of the prevailing interest rate and the business environment in the country, and with the rising interest rate environment, the cost of financing has increased which caused a negative impact on borrowings.
However, the current government’s imports substitution policies to encourage domestic producers played an important role in encouraging capacity expansion activities in the business sector.
January loan data revealed that a larger part of the loans to private businesses were availed by the manufacturing sector, within which the most active borrowers were the producers of textiles followed by the producers of food and beverages.
Bank outstanding loans to manufacturing sector increased to Rs3.08 trillion at the end of January 2019 from Rs2.44 trillion in the corresponding period of last year. Textile companies’ accumulated borrowings increased to Rs1 trillion from financial institutions, compared with Rs796.9 billion a year earlier.
Moreover, private sector loans for the personal use by the end of January FY19 increased to Rs.645.8 billion from Rs.639.9 billion whereas, loans to Trust Funds and NPO’s decreased to Rs18.3 billion from Rs.20.1 billion in the previous month same year.
As the private sector remains hostage to several impediments, including utilities', tariffs, and interest rates etc., therefore a decline in private sector borrowing must be viewed as an indicator of the business community's perceptions of the business environment and therefore mitigating measures are required to be put in place to deal with their concerns.
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