Bank credit to private sector plunges: report

ISLAMABAD: Bank lending to private sector has declined from 24.1 per cent of GDP in 1995 to 17.9pc in 2019, that has undermined private sector economic growth in Pakistan.

A report compiled by PRIME Institute, an Islamabad-based think tank, highlights that while decline in commercial lending to the private sector has had its impact on private sector economic growth, it has increased profitability of the banking sector.

The report stated that the banking sector has increased investments in government securities and the banks’ investment portfolio shows a jump from 10pc in 2010 to 46.4pc in 2020 in the official papers. The report states that the situation indicates that banks have turned to risk-free lending to the government rather than playing a role in allocation of capital to the private sector.

On the other hand, the profitability of banking sector increased from Rs7bn in 2000 to Rs244bn in 2020.

The report finds that the private sector lending stands at 17.9 percent of GDP in Pakistan, while regional economies like Bangladesh stood at 45pc and India at 50pc.

The report mentions gradual extinction of Deve­lopment Finance Instit­utions as a factor, which were used to complement the banking sector by bridging the gaps in the supply and demand of financial services.

The report notes that after privatisation, the infection ratio that stood at 25pc in December 2000 which fell to 8pc in 2017 and then increased to 9.2pc as of December 2020.

The report also finds that the banks’ credit disbursements to private sector are heavily skewed towards large enterprises. The share of large-sized borrowers in total loans stands at 87pc.