Private sector credit off-take up Rs15.65b

KARACHI - Banks credit to the private sector has swelled by Rs15.655 billion to Rs98.499 billion in July-June 4 (2010-11) as compared to Rs82.844 billion during the corresponding period of last fiscal, showing a growth of 15.89 per cent. This growth has been widely attributed to some improvement in seasonal credit demand of the private sector caused by soaring input prices. Banks credit supply to the non-government sector sharply decreased to Rs114.2 billion against the credit of Rs168.1 billion during the same period under review. The provisional data on monetary aggregates posted by SBP on its website revealed that from July 01 to June 4, 2011, the domestic banks disbursed Rs98.499 billion to the private sector compared to Rs15.429 billion to the Public Sector Enterprises during July-June FY11. According to SBP monetary statistics, the governments net borrowing from the banking system rose to Rs688.7 billion from Rs495.2. The government borrowed Rs716.7 billion from the SBP for budgetary support during July-June FY11 against Rs434.7 billion in the equivalent period of last fiscal year. A recent report of the Standard Chartered Bank clearly stated that the central governments borrowing from the banking system for deficit financing will increase to Rs550 billion in the next fiscal year 2011-12 against the budget target of Rs 304 billion due to a higher-than-targeted fiscal deficit and lower-than-targeted external financing. In the first 11 months of FY11, the government borrowed Rs 480 billion from commercial banks and Rs 153 billion money printed from the central bank. Banks appetite for holding government paper is limited; they already hold Rs 2.1trillion of government debt against the stipulated regulatory reserve requirement of Rs 980 billion. Hence, markets will demand a higher premium to purchase government debt and rates should remain firm, the report said. Private investment spending is also targeted to rise in FY12, as the government reduces its borrowing from banks, creating space for banks to lend to the private sector. Private investment spending has been crowded out in the last four years as heavy government borrowing has kept lending rates high, declining sharply from 15.4 per cent of GDP in FY07 to 8.5 per cent of GDP by FY11, the report mentioned.