Banks lending to private sector remains lackluster
Despite consistent slash in policy rate of more 250 basis points by Pakistan's central bank in the last year, the lending of commercial bank to private sector remained lackluster to show negative trend depicting a reducing role of banking system in economic development and overall business activities of the country.
According to statistics of State Bank of Pakistan (SBP), the credit to private sector witnessed a negative growth to stand at minus Rs 81 billion, showing recoveries of the loans by commercial banks from borrowers of various sectors. These recoveries of borrowers were increased from the previous financial year which was recorded at Rs 56.2 billion.
The central bank has reduced its policy rate from 8 percent to 6.5 percent in the period from July 2014 to July 2015 however the loans of the commercial banks were portraying an adverse trend of declining instead of increasing in the private sector. The running capital of the private sector have been reduced significant- ly in the last one and half year due to steep decline in the petroleum prices and food prices globally and locally, said Deputy Governor SBP Riaz Riazuddin.
However, there are grave issues in economy yet to be resolved such as energy crisis that keep businessmen away from expanding their business in different sector, he said.On the other hand, the flood destruction in the country will also hurt local economy and private sector which may also limit the borrowers capacity of doing business in the coming months, hence the borrowing from commercial banks will continue its level or present trend.
Analysts are optimistic that the LSM growth will get impetus in the coming financial year as it nearly settled at 3.5 percent as compared to the target of 7 percent for financial year 2014-15. The government in its recent Finance Act introduced various scheme to encourage private sector which may ultimately pick up the credit demand of private sector from the banks. SBP revised down the mark-up rates for various refinance schemes at 6 percent in order to encourage credit to private sector, exports and local production throughout the country.
In this regard, the central bank notified that it reduced the mark-up rates to 6 per- cent for banks borrowers living in the flood affected areas under refinance scheme for revival of SMEs & agricultural activities in flood affected areas of 2014.
The notification stated that refinance under the scheme shall be provided to the banks at 3.00% p.a whereas the banks shall be permitted to charge a maximum spread of 3.0% p.a. from the borrowers. SBP has revised down the markup rate for exporters availing financing facilities under Export Finance Scheme (EFS) to 4.5% p.a. from 6 percent with effect from July 01, 2015 whereas Long Term Financing Facility (LTFF) has been slashed to 6 percent from 7 percent earlier.
Japanese Prime Minister Shinzo Abe, second right, accompanied by Chief Cabinet Secretary Yoshihide Suga, right, poses as he receives a 38-page report from Taizo Nishimuro, second left, chairman of the Japanese government's advisory panel on the history of the 20th century and on Japan's role and the world order in the 21st century, and Shinichi Kitaoka, deputy of the panel, at Abe's office in Tokyo Thursday, Aug. 6, 2015. The government panel commissioned by Abe to review the country's recent history has praised Japan's postwar economic growth and commitment to pacifism but also cites lack of reconciliation with China and South Korea.