KARACHI - The growth in trade related loans has declined sharply to 0.9 per cent in first seven months of FY09 compared to robust growth of 21.0pc in the same period last fiscal. This was despite the strong contribution of Export Finance Scheme loans in total trade loans. Although the loans under EFS recorded a robust growth of 14.8pc in Jul-Jan FY09 compared with 5.1pc in the corresponding period last year, the export loans other than schemes (mainly against FE-25 loans) witnessed substantial net retirement which had diluted the impact of higher growth under EFS loans. Retirement under FE-25 loans was probably due to sharp depreciation of rupee against US dollar which had caused exporters to (1) substitute their FE-25 outstanding stock with EFS and (2) to meet their running finance requirement through EFS. A commodity-wise break up shows that most of the increase in EFS is recorded in rice and textile related products such as towel, and cotton fabrics. In specific terms, increase in loans extended to rice traders is consistent with bumper crop and remarkable increase in rice exports. Likewise, higher loans under towel and cotton fabrics primarily reflects higher export quantum in these commodities. State Bank of Pakistan has disclosed this in its second quarterly report for FY09. It must be noted here that to support exporters, SBP further enhanced the banks limit under EFS and LTFF. As a result of this measure, more liquidity will be available with banks to facilitate exporters at a highly concessional rate. Recently, SBP has also issued performance based mark-up rates under EFS to further lower the rates for exports. The fall in the import finance during Jul-Jan FY09 was visible in loans extended to importers against FE-25 and in local currency. While the drop in import finance was in line with the deceleration in countrys import bills following a sharp fall in international oil prices, the upward pressure on exchange rate has further dragged down the demand for import finance. Report said that after recording robust growth in the past four years, demand for working capital loans decelerated substantially to 3.2pc during Jul-Jan FY09. A detailed analysis of Jul-Jan period shows that the strong demand for working capital loans during Q1-FY09 begun to weaken sharply since October 2008 onwards. Thus, after witnessing exceptional growth in Q1-FY09, the growth under working capital loans dropped drastically in Oct-Jan FY09. A large number of sectors witnessed fall in demand for running finance requirements in Oct-Jan FY09 which is in stark contrast to previous years trend. Besides, slowdown in economic activities, one of the major factors behind the significant slowdown in running finance requirements of corporates was a sharp fall in raw material prices in post Q1-FY09. For instance, drop in raw cotton prices since November 2008 onwards contributed to only 19.2pc growth in demand for running finance in textile sector during Oct-Jan FY09 compared with strong growth of 52.9pc in the corresponding period last year. Fall in demand from the power sector in Oct-Jan FY09 was partly due to retirement of bank loans by a few IPPs to avoid the rising financial expenses. The moderation in demand from power sector was further compounded by the fact that a few IPPs had already availed their credit limit till September 2008. In case of fertilizer sector, though the credit demand was strong in Jul-Sep FY09, it decelerated sharply in the subsequent months. It may be pertinent to mention here that the higher demand from the fertilizer sector in Q1-FY09 was partly due to delays in settlement of DAP subsidy claims with the government.