By Staff Reporter
KARACHI: The private sector borrowing from banks accelerated to a 15.4% year-on-year gain in August, the strongest pace in months, as declining government debt needs freed up liquidity and lower interest rates spurred demand across industries from textiles to autos.
Credit to the private sector climbed to Rs9.744 trillion last month from Rs8.441 trillion a year earlier, according to data released by the State Bank of Pakistan. That marks an increase of Rs1.303 trillion , fueled by “easing financial conditions, improving economic activity and continued decline in budgetary borrowing.”
Month-on-month, credit contracted 1.7% or Rs173 billion, from June’s Rs9.917 trillion peak, a seasonal pullback that underscores the volatility in short-term flows. The government’s sharp pullback in borrowing played a pivotal role. Net budgetary borrowing from the banking system plunged after the State Bank transferred 2.4 trillion rupees in profits to the national treasury, easing crowding-out effects and channeling more funds toward businesses.
“This reduction in government borrowing has created fiscal space for the private sector, enabling an increase in banks’ credit to the non-government sector,” the central bank said. That shift propelled a broad-based expansion, with gains in working capital loans, fixed investment advances and consumer financing. Key sectors driving the surge included textiles, telecommunications and wholesale and retail trade, areas hit hard by last year’s floods but now showing resilience amid stabilizing supply chains and rising exports.
A breakdown of the data highlights the momentum: Private sector investment in securities and shares jumped 31% year-on-year to Rs260 billion in August from Rs198 billion the prior year. Overall loans to businesses and households rose by Rs1.24 trillion to Rs9.484 trillion, up from Rs8.243 trillion in August 2024.
Consumer lending, a bellwether for household confidence, provided a bright spot. Auto financing hit a 26-month high of Rs294 billion, a 29% year-on-year increase and 3% month-on-month gain. While that’s still 20% shy of the Rs368 billion peak in June 2022, before sky-high inflation and currency woes derailed demand, the uptick signals thawing in a sector that’s been dormant.
According to brokerage Topline Securities, the recovery reflects improving consumer demand amid falling interest rates and is expected to further lift auto sector sentiment, with stronger sales and earnings outlook for listed companies.
The State Bank struck an optimistic yet measured tone, projecting that “the demand for private sector credit is likely to maintain its recent momentum, despite some risks arising from the anticipated post-flood slowdown in economic activity.” That comes as Pakistan navigates a fragile recovery, with inflation cooling to around 4 from double digits and the policy rate trimmed to 11% in recent months to support growth without reigniting price pressures.
For banks, the trend is a boon after years of lopsided lending to the government, which peaked at over Rs20 trillion in mid-2023. Deposits grew 12% year-on-year through August, providing ample liquidity, while non-performing loans stabilized at 7.5% of the portfolio. The credit boom could bolster Pakistan’s gross domestic product expansion, forecast by the International Monetary Fund at 3.5% for the fiscal year ending June 2026, up from 2.5% last year.
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