Between July 1, 2019 and Jan 10, 2020, banks’ net fresh lending to the private sector slumped to Rs138 billion — or less than one-third of Rs495.6bn lent in the year-ago period — according to the State Bank of Pakistan (SBP).
Why are banks not lending to the private sector? More importantly, can they actually accelerate lending in the remaining part of the fiscal year?
Despite a big decline in the GDP growth rate from 5.5 per cent in 2017-18 to 3.3pc in 2018-19, banks’ private-sector lending remained robust, falling to just Rs693bn from Rs775bn. During this fiscal year, it seems that Pakistan is again headed towards an even lower growth rate — 2.4pc, according to the projection by the International Monetary Fund (IMF).
Unlike in the past fiscal year, banks’ private-sector lending has also plunged. Can banks start lending aggressively now if, for the argument’s sake, they choose to do so?
The SME sector has huge credit demand and tapping it at a time when the overall private-sector appetite is low makes sense
The recently created Pakistan Corporate Restructuring Company (PCRC) may help revive sick industrial units through the restructuring of their overdue bank loans and that, in turn, may create room for banks to lend more to the private sector. Ten commercial banks — HBL, NBP, UBL, MCB Bank, ABL, Meezan Bank, Bank Alfalah, Bank Al Habib, Habib Metropolitan Bank and Faysal Bank — that have jointly set up the company are the biggest lenders of the private sector and the government.
One reason for the banks’ low lending to the private sector is that bad loans have recently ballooned and the loan infection ratio has shot up. Banks certainly need to take care of this issue before they can improve private-sector lending.