KARACHI: Loans to private-sector businesses increased 8.8% over the preceding 12-month period, according to the State Bank of Pakistan (SBP).
An increase in loans acquired by private-sector businesses shows they are optimistic about economic growth. With more money to buy inventory and expand operations, businesses create new jobs and contribute towards GDP growth.
There is a perception among some people that the growing level of outstanding loans in Pakistan is reflective of a ‘credit bubble’. Banks’ non-performing loans will balloon should the bubble burst, they believe. However, official statistics prove such concerns are misplaced: the overall share of credit in the economy remains minuscule compared to banking deposits. The advances-to-deposits ratio stood at 46.4% at the end of December 2015 as opposed to 67.7% recorded at the end of 2009.
Similarly, net NPLs as a percentage of net loans was only 1.9% at the end of 2015, lowest since 2009 at least.
Latest statistics on credit distribution in the economy show that outstanding loans to private-sector enterprises amounted to Rs3.27 trillion at the end of April after adding Rs264.7 billion over the preceding 12 months. In contrast, the net credit of scheduled banks to the government sector shot up 17.5% to Rs5.8 trillion over the same period.
Banks’ loans to the government already constitute nearly 47% of the total outstanding credit in the economy. The latest data shows their lending to the government – which is mainly in the form of investments in treasury bills and sovereign bonds – increased quicker than their net loans to private-sector businesses during the past 12 months.
The largest borrower within private-sector businesses is the manufacturing sector whose outstanding loans amounted to almost Rs1.9 trillion, up 9.7% from a year ago.
Loans to electricity, gas and water supply businesses in the private sector increased 18.2% year on year to clock up at almost Rs337 billion at the end of April. The year-on-year rise in loans to the construction industry was far greater (51.2%) over the same period, although the outstanding amount was smaller in absolute terms (Rs96.4 billion). Credit to businesses that belong to the commerce and trade sector amounted to Rs242.3 billion, up 1.9% from a year ago.
Loans extended under the ‘personal’ category amounted to almost Rs403.3 billion at the end of April after rising 11.7% over the preceding 12 months. Interestingly, banks have extended almost one-quarter of total loans under the personal category to their own employees. Credit to bank employees amounted to Rs97.5 billion at the end of April, which was 24.1% of total personal loans.
Consumer financing amounted to Rs299.1 billion at the end of April, which was 15.5% higher than outstanding consumer financing recorded at the end of the fourth month of 2015. Within the consumer financing category, the largest year-on-year expansion was recorded in car financing in absolute terms. Car financing clocked up at Rs106.1 billion at the end of April, up 32.6% from a year ago.
Home financing amounted to Rs46.4 billion at the end of the last month, up 18.2% from April 2015.