Updated June 18, 2005



Recent boom in the consumer credit demand has changed the dynamics of the banking industry. Consumer loans, which stood at 8.26% of total advances at the end of 2002, have reached 13.26% of banking industry's loan book. Consumer loans' share has increased despite an overall increase of 64% in total advances as consumer loans themselves grew by 163% in the last two years. The consumer credit grew by 59% compared to 38% growth in other segments. Emerging middle-class, changing lifestyles and rising inflation, all have contributed to the growth of demand for consumer loans and commercial banks have come up with innovative products to fulfill the growing demand. The overwhelming demand for the consumer loans augurs well for the banking sector as 1) it offers better margins compared to corporate loans 2) due to larger base and smaller ticket size defaults have lower impact on the banks' balance sheets. In 2005 analysts expect the consumer credit to grow by around 35%, further expanding the loan book of the industry and taking the consumer loans portfolio to 15.18% of total advances.

The recently released Economic Survey provides various evidences of Pakistan's growing economy. One of these is growing consumption of electricity during the first nine months of current financial year showing considerable growth compared to last year. Power generation has also increased during this period and so has the number of consumers. All this provides much proof of the growth that government is boasting about. Pakistan's installed generation capacity registered only a marginal increase of slightly 0.7%, from 19,254 MW to 19,389 MW. This was a result of minor additions in the capacities of some IPPs and thermal plants of WAPDA. Just before this slight increase, the hydel capacity of the country had been augmented by the addition of Ghazi Barotha by 1450 MW. According to a report from InvestCap (based on energy generated by WAPDA, including purchases from IPPs and excluding KESC and Nuclear power plants) it increased by 10.1% to 53,145 GWh compared to 49,665 GWh. This translates into a generation growth of 5.5% during 2000-04. Energy consumption amounted to 46,300 GWh compared to 41,800 GWh, showing an increase of 10.7%. The higher consumption of power correlated with the higher supply of electricity from Ghazi Barotha. A double digit growth in power consumption should not come as a surprise keeping in mind 15.4% growth in large scale manufacturing and a provisional 8.4% GDP growth. The major consumers of power were the household and industrial consumers with 42.9% and 29.7% share in the total consumption respectively. Both these sectors reduced their respective shares in the overall consumption as government consumption increased. T&D losses were contained at 24.2% down from 25.1% last year. This was a result of some technical and administrative measures taken by WAPDA. Thermal power generation accounted for 67.3% of the total power generated compared to 58.0%. Higher dependence on thermal power was due to lesser rains in monsoon season. Hydel power generation amounted to 17,362 GWh compared to 20,873 GWh with a share of 32.7% in the total generation.



According to a report by Alfalh Securities the auto assemblers are continuing with the joyride in the third successive year as the total unit produced by the manufacturers increased by 29% to 112,628 units from 97,345 units in the first eleven months of this fiscal year. Due to introduction of popular model in the high end of car segment and lower base effect 1300-1600 segment recorded higher growth of 29% compared to 16% recorded in 800-1000 segments. The profitability of auto manufacturers declined despite the boom in unit sold owing to higher increase in cost and shrinking of margins. The buoyancy in car sales, seen in recent years due to (1) easy availability of cheap financing offered by banks and leasing companies (2) boom in economy and (3) introduction of new models by the manufacturers is continuing in the third year. The car production (the closest proxy of car sold) has surged by 24% during the first 11 months of the current fiscal year with 112,628 units as against 90,647 units produced in the same period last year. During Jan- March a total of 30,200 units were produced, which were 27% higher than production in the same period last year. In the current quarter, the industry has produced 25,757 units and if the current trend continues the industry may easily cross 125,000 units mark this year. The car sale through non-cash financing has been 60-65% in Pakistan while this ratio stands at 80%-85% in India. The rise in interest rates is likely to modestly hamper growth in car sales, as it would increase the cost of financing. According to some estimates there has been an increase of 13%-14% in car rental payment since last year due to rise in interest rate for a middle-income group (800-1000 segment car). The biggest impetus of growth has been availability of purchasing power. The government is continuing the protection extended to lower segment cars where most of the growth has been occurring.