Slow Economy - Businessmen Almost Stop Taking Loans from Banks - Android

Whether it’s the manufacturing or service sector, a major section of businesses have stopped taking loans from commercial banks due… Read More

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Whether it’s the manufacturing or service sector, a major section of businesses have stopped taking loans from commercial banks due to multiple unfavorable conditions.

State Bank of Pakistan’s (SBP) statistics show that the bank borrowing or credit to the private sector has dropped massively from July to mid-November 2019.

According to the central bank, the overall credit to the private sector is negative, with loan repayments of Rs. 4.12 billion during the period, whereas it stood at Rs. 223 billion in the same period of last year.

Businessmen and entrepreneurs have sidelined themselves from bank financing for meeting their operating expenses and expanding their operations and businesses.

The primary reason for this adverse trend is prevailing high-interest rates, followed by a steep hike in cost of doing business and a lack of risk appetite among different sectors. These factors contributed to the slowdown in the economy along with various challenges related to the macro-economy.

It is pertinent to mention here that credit (short-term loans) to private sectors reached an all-time high level to Rs. 775 billion in 2017-18. It also maintained a handsome level in 2018-19, reaching Rs. 692 billion. During this period, commercial banks lent large amounts to businesses including the corporate side to consumer banking (etc. auto and housing finance).

However, the gradual hike in policy rates, which elevated to 13.25 percent on the account of economic reforms, affected the trend of bank financing negatively. Lower demands and productions of goods and services (like LSM) also reduced bank financing in different sectors.

Govt Measures to Stir Up Banks Financing

The government has taken a few measures to stir up economic activity which include easy loans for performing segments. It aims to enhance the credit line with the help of the Rs. 100 billion Kamyab Jawan program.

The policy rates are likely to go down from next year and as a result, the interest rates of banks will also go down. The stabilized cost of operations and improved ease of doing business are going to increase economic activity in the country which will help reverse the loaning trend to the private sector again.

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