ISLAMABAD: The Finance Ministry has linked the slowdown in credit to private sector to the demand and supply as well as weak profitability of major industries till second half of the current fiscal year.
Private sector credit includes loan and advances by financial intermediaries plus total bank bills outstanding. Lending and credit to the private non-finance sector (including public trading enterprises) or, where stated, the government sector, by those financial intermediaries whose liabilities are included in broad money.
Domestic credit to private sector refers to financial resources provided to the private sector, such as through loans, purchases of non-equity securities, and trade credits and other accounts receivable, that establish a claim for repayment.
“Finance Ministry has recorded that private sector credit grew at a slower but decent pace as total credit to private sector increased by Rs224.5 billion during first half of current fiscal year which is lower than the credit uptake of Rs325.8 billion in the corresponding period of previous fiscal year” a well placed source at Finance Ministry told this scribe here on Tuesday.
Few other factors including government borrowings from commercial banks amid slower deposit growth, challenging security situation, falling commodity prices, and continued energy and gas shortages for the industry also contributed significantly in this connection.
Sluggish domestic and international demand, declining cotton and yarn prices and exchange rate fluctuations affected the financial performance of textiles. Along with the credit growth, the industrial growth in first half of of current fiscal year, has also not been as impressive as in the last year. The slowdown in credit growth was mostly led by textiles.
Consequently, the net profit margins and cash flow of the industry has declined; while costs of goods sold have increase. Nonetheless, other industries, such as cement and chemicals, showed better financial performance and credit uptake. The agriculture sector, despite recent floods16, have availed net credit of Rs18.5 billion in first half of fiscal year 2014-FY15 as compared to Rs17.2 billion in first quarter of current fiscal year..
November’s cut in policy rate of 50bps, has not yet translated into lower real lending rates which may not have favorably impacted the demand for credit. Nonetheless, the analysis of the financials of the banking sector, as the sector remains profitable, capital adequacy is above the minimum regulatory requirements, and there is sizeable growth in investments and advances as compared to previous fiscal year.
