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ISLAMABAD: Bank lending to the private sector increased from 24.1% of GDP in 1995 to 17.9% in 2019, which undermined private sector economic growth in Pakistan.
A report compiled by the PRIME Institute, an Islamabad-based think tank, points out that while the decline in commercial lending to the private sector has had an impact on private sector economic growth, it has increased the profitability of the banking sector.
The report indicates that the banking sector has increased its investments in government securities and that the investment portfolio of banks shows a jump from 10% in 2010 to 46.4% in 2020 in the official journals. The report says the situation indicates that banks have turned to risk-free lending to the government rather than playing a role in allocating capital to the private sector.
On the other hand, the profitability of the banking sector increased from 7 billion rupees in 2000 to 244 billion rupees in 2020.
The report finds that private sector lending accounts for 17.9% of GDP in Pakistan, while regional economies like Bangladesh accounted for 45% and India for 50%.
The report mentions the phasing out of development finance institutions as one factor, which has been used to supplement the banking sector by bridging the gap between supply and demand for financial services.
The report notes that after privatization, the infection rate, which stood at 25% in December 2000, fell to 8% in 2017 and then rose to 9.2% in December 2020.
The report also finds that bank credit disbursements to the private sector are heavily skewed in favor of large corporations. The share of large borrowers in total loans amounts to 87 pc.
Posted in Dawn, July 29, 2021
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