CREDIT DISBURSEMENT

DURING FIRST HALF FY2008 WAS IMPRESSIVE

AMANULLAH BASHAR
Jan 28 - Feb 03, 2008

Both agriculture and exports contribute significantly in the economic development and the two sectors have shown impressive performance during first half of financial year 2007-08.

However, it has yet to be seen how the second half of the financial year reacts especially in the backdrop of sharp political swings recently, and the installation of a new government in the wake of elections scheduled Feb 18, 2007.

In fact, it is the agriculture sector, which provides a substantial support to export oriented manufacturing sector especially the textile sector that dominates our export regime. In order to accelerate agriculture activities, the central banks has come out with innovative schemes to include the small farmers as well as the potentially rich horticulture sector in the main stream of economic activities. The vision to activate small farmers is no doubt appreciable on the part of the central bank, which has planned to provide access to banks credit to a large number of small farmers so far deprived of financial support by the commercial banks.

Following is the performance of the banking sector in disbursement of credit to the agriculture and export sector during the first half of the current fiscal year:

AGRI CREDIT TARGET-RS 200 BILLION IN 2008:

Disbursement of credit to the agriculture sector by commercial and specialized banks has shown an impressive growth of 25.94 percent year-on-year during the first half (July-Dec, 2007) of the current fiscal year.

Commercial and specialized banks have disbursed a total of Rs90.277 billion to the agriculture sector during July-December period as compared to Rs 71.681 billion in the same period last year, showing an absolute increase of Rs 18.596 billion.

Overall credit disbursement by five big commercial banks including Allied Bank Limited (ABL), Habib Bank Limited (HBL), MCB Bank, National Bank of Pakistan (NBP) and United Bank Limited (UBL) stood at Rs 44.914 billion during the first half of the current fiscal year, compared with Rs 34.280 billion during same corresponding period last year, depicting an increase of Rs 10.634 billion or 31%.

NBP and HBL topped the list of five big commercial banks in terms of agricultural credit disbursement of Rs 13.938 billion and Rs 10.420 billion against the annual target of Rs 32 billion and Rs 22 billion, respectively. During July-December period, MCB Bank disbursed 9.688 billion, ABL Rs 6.831 billion, and UBL Rs 4.034 billion against their annual targets of Rs 18.50 billion, Rs 11 billion, and Rs 13 billion, respectively.

Moreover, Zarai Taraqiati Bank Limited (ZTBL) has disbursed Rs 23.870 billion during the first half of the current fiscal year, while disbursement by Punjab Provincial Co-operative Bank Limited. (PPCBL) stood at Rs 2.402 billion. Besides, 14 other domestic private banks (DPBs) loaned a combined Rs 19.090 billion during July-December period against the full-year target of Rs 35.50 billion.

It may be mentioned here that the State Bank of Pakistan has set a target of Rs 200 billion for the current fiscal year, up from Rs 166 billion in the last fiscal year, showing an increase of Rs 34 billion. During the last fiscal year, commercial and specialized banks disbursed a total of Rs 168.3 billion.

EXPORT FINANCE SCHEME: The export refinance facilities extended by commercial banks to the exporters at 7.5% (including those granted by them from their own sources) stood at Rs 138.45 billion as per the latest data available upto 15th December, 2007 as against Rs 126.85 billion extended during the corresponding period of the last fiscal year showing a growth of 9.15%.

The modification made in the system of grant of refinance to banks under the Export Finance Scheme has resulted in enhancement of availability of working capital facilities to the exporters; especially exporters of value-added textile sector, at 7.5% p.a. Reports regarding the reduction in the availability of working capital facilities to the exporters are incorrect, baseless and misleading.

It may be mentioned here that the banks have provided significant financing through their own sources since the start of the modified procedure viz. about Rs 38 billion at a rate of 7.5% p.a. and the State Bank has funded rest. Sector-wise analysis of data revealed that banks have provided about Rs 83.4 billion to the textile sector during the quarter that ended in September 2007 as compared to Rs 71.5 billion during the corresponding period of the last fiscal year showing an increase of about 17%. Export refinance has grown at a faster rate than the export earnings. Textile exports are continuously declining from the month of July 2007 when textile exports were $952 million, which declined to $938 million, $922 million & $837 million during the months of August, September and October 2007, respectively.

It may be pointed out here that as on 30th June 2007, a total of Rs 134 billion was outstanding as refinance granted by the State Bank to different banks under its Export Finance Scheme. However, due to monetary policy implications of the refinance granted under EFS & LTF-EOP Scheme especially the debt swap under the modified Scheme, the State Bank introduced a mechanism whereby commercial banks were directed to provide 30% of export finance from their own sources at a rate of 7.50% p.a. This step was accompanied by instructions to banks to ensure adequate availability of export finance. SBP has held several consultations with exporters and their associations and commercial banks as well as held joint meetings for them to better understand the mechanism of facility.