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Commercial banks in Pakistan surfer from some serious issues that include, high interest rates, concentration in government securities. As a result, the Government of Pakistan has emerged as one of the largest borrowers. It is believed that more than 80% of total investment of banks is in government securities. This on one hand deprives the private sector from borrowing and on the other hand becomes a serious impediment in the growth of the economy.

The central bank data showed that outstanding credit to the private sector rose by 0.72%YoY to PKR8.41 trillion in March 2024. On a sequential basis, private sector loans posted a drop of 0.16%MoM as compared to the credit of PKR8.42 trillion in February 2024.

The SBP’s data showed that loans to the private sector totaled PKR8.406 trillion in March 2024, up 0.7% from a year earlier but down 0.2% when compared with the previous month. These loans were 8.4% of the GDP, and 75% of total loans in March 2024.

The factors those were responsible for the subdued demand for these loans included expensive auto finance, increasing car prices, and rapidly rising inflation, all of which contributed to low consumer purchasing power.

The loans to the manufacturing sector amounted to PKR4.84 trillion in the review period, up by 2.26%YoY but down 0.39%MoM. The borrowing by the construction sector was reported at PKR194.43 billion in March 2024, down by 0.59%YoY and 2.09%MoM.

In March, consumer financing declined by 8.2% to PKR807 billion from PKR879 billion a year ago. Month-wise, the financing for house building decreased by 0.67% as compared to PKR207.14 billion incurred in the previous month. The financing for personal use was PKR242.05 billion, down by 3.63%YoY and 0.03%MoM.

The auto loans dropped by 24.4%YoY to PKR239 billion in March 2024, marking the twenty-first month of consecutive decline as consumer financing tightens.

In March 2024, there was a 1.4% decrease in auto loans as compared to February 2024. The amount of car financing was PKR243 billion in the prior month. In June 2022, these borrowings reached a record high of PKR368 billion. Since then, these loans have decreased by PKR129 billion.

The State Bank of Pakistan (SBP) has kept its benchmark interest rate unchanged at a record 22% since July 2023. The central bank has hiked interest rates by a cumulative 15 percentage points since September 2021 amid skyrocketing inflation.

According to analysts, this downward trend will reverse as demand for auto loans may rise in response to potential interest rate cuts and an easing of inflationary pressures. The SBP is likely to begin lowering its benchmark interest rate this quarter.

According to the latest data from the Pakistan Automotive Manufacturing Association, car sales in Pakistan in March 2024 came to 9,379 units, showing a 3% decrease as compared with the previous month and a 1% decline as compared with the same period last year.

The loans to the agriculture, forestry, and fishing sectors rose to PKR392.15 billion in the month under review, up by 15.69%YoY. On a sequential basis, the loans to the sector recorded a decline of 2.0%MoM.

Bank deposits on the rise

The total deposits held by scheduled banks have moved up by 21.29% YoY to PKR28.42 trillion in April 2024 as compared to PKR23.43 trillion in April 2023.

According to data released by the SBP, Banks’ deposits have edged higher by 0.33% MoM, compared to PKR28.32 trillion in March 2024.

Total advances decreased by 0.68% to PKR12.03 trillion as compared to PKR12.11 trillio from a year ago. On a monthly basis, advances increased by 0.54% from their value of PKR11.96 trillio in March 2024.

Advances to Deposit Ratio (ADR) stood at 42.33% showing a decrease of 936 bps on a yearly basis, while showing an increase of 9 bps on a monthly basis.

Total Investments of Scheduled Banks were reported at PKR27.28 trillio as compared to PKR19.69 trillion from a year ago and PKR26.27 trillion from a month ago, showing a 38.52%YoY increase and a 3.85%MoM increase.

Investment to Deposit Ratio (IDR) moved up by 1,194 bps to 96.01% as compared to April 2023 and increased by 325 bps when compared to a month ago.