Credit offtake shows staggering growth of Rs102b

KARACHI - The private sector credit off-take from scheduled banks has soared by 102 billion rupees from July to May, FY2008. The disbursement of credit to the private sector expanded by Rs373.3 billion in the period from July 1, 2007 to May 24, 2008 against Rs270.9 billion lending to this sector in the corresponding period of previous fiscal, depicting that private sector credit demand grew higher than the last period under review. The net government budgetary borrowings during the said period went up to Rs410.9 billion against Rs170.2 billion in last fiscal, however, the GoP borrowed Rs538.9 billion during 11 months of FY07-08 when compared to Rs22.145 billion last year from SBP.   From July 01, 2007 to May 24, 2008 government budgetary borrowings from scheduled banks was negative by Rs197.16 billion. According to the SBP monetary aggregates for the reviewed period of FY07-08, the aggregate M2 growth decreased by 9.7pc against 13.62pc during the same preceding year which was lower than FY08 target of 13.7pc.    The SBP latest profile of monetary assets indicate that during FY07, loans to private sector increased by Rs365.7 billion against 401.7 billion during the said period of last financial year. According to the monetary survey as on 24th May FY08, Net Foreign Assets of banking system showed negative growth. The contraction in NFA of banking system has been the result of widening trade deficit and lower net receipts of external financing. On the other hand, Net Domestic Assets stood at Rs720.9b as on May, 24, 2008 against Rs386.3b in May 26, 2007 witnessing sharp acceleration in NDA growth of the banking system. The growth in NDA flows of the banking system including net government sector borrowing, credit to non-government and other sector during July-24 May FY08 increased by 23.41pc. It is worth noting that in consequence of rising discount policy rate by 150 bps and reserve requirements by 100 bps as a interim monetary policy measures taken by the SBP affective from 23rd May 2008, the credit off-take demand growth rate remained at sustainable level due to demand from ongoing projects. It is also expected that the present government would borrow huge amount of capital in order to finance fiscal budget deficit in addition to that, political stability and pro-investor banks' credit policies would further increase the credit demand in future. In spite of charging high interest rates on private lending from scheduled, the credit growth would remain high especially in fertilizer and cement sectors which are going to upgrade and expand plants. and they would require more working capital gains by relying on local sources of investing money. Banks after their restructuring and upgradation of their credit policies and risk management systems are expected to be positioned better for credit delivery in the coming years. SBP had reported in 3rd quarterly report for the year 2007-2008 that following a sharp rise since January 2008, the cumulative growth in private sector credit for the current fiscal year accelerated to 14.9 percent -2.5 percentage points higher than that in corresponding period last year. The private sector credit, which had been growing at a slower pace till January 2008 compared to previous year, gathered momentum thereafter. The key factors contributing to this recent acceleration in private sector credit growth were (1) rise in working capital requirements due to higher input costs; (2) the need for bridge financing to settle price differential claims of OMCs and IPPs and (3) the higher fixed investment (visible in a few sectors, e.g. textile, refineries and power) in the month of March 2008 . Government during July-24th May FY08, borrowed Rs551 billion from SBP which has almost doubled the stock of MRTBs with SBP to Rs940.6 billion.

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