Credit to private sector slumps to new low

Monday, 1 April 2013 00:26 - - {{hitsCtrl.values.hits}}

Growth in credit to private sector has slumped to a new low in the New Year reinforcing concerns over the rebound in the economy and prevalent interest rate regime.

As per latest data from the Central Bank, credit to private sector in January had grown by only 15.5%, further down from 17.6% in December and by over half of 37% rise witnessed a year earlier.

Cumulative credit to private sector as at January 2013, amounted to Rs. 2.368 trillion, up by Rs. 10 billion from end December 2012 figure of Rs. 2.358 trillion. A year ago the figure was Rs. 2.050 trillion.

Some pinned the low pace of growth to weaker appetite for borrowing from the private sector in view of the poor economic fortunes whilst others linked it to interest rate still being relatively higher. Official sources noted that the growth indicates that the relaxation of monetary policy in December 2012 is yet to be reflected in bank lending.

It was in view of the latter that the Central Bank recently indicated to commercial banks that lending rates should head southwards in line with the direction of monetary policy.

“When such adjustment takes place, it is expected to stimulate private sector economic activity towards the growth targets for 2013,” Central Bank said in its communiqué following the last monetary policy review.

Last year credit growth was intentionally curbed to cool the economy. Growth of credit extended to the private sector also decelerated to 17.6% by end 2012 from 34.5% at end 2011.

The reduction in policy interest rates and the expiration of the credit ceiling of 18.5% in December 2012 were expected to support the economy to move towards its full potential in 2013.

Compared to the increase of credit of Rs. 352 billion extended to the private sector by commercial banks in 2012, the Central Bank expects credit to the private sector to increase by around Rs. 435 billion (a year-on-year growth of 18.5 per cent) in 2013. The Bank also said such a credit growth will be compatible with the anticipated expansion in economic activity.

The Government expects economic growth in 2013 to rebound to over 7% from a 6.4% last year.