CREDIT OFF-TAKE

AGRICULTURE MORE ACTIVE FOR LOANS YET WHEAT CROP TARGET UNMET

AMANULLAH BASHAR
(feedback@pgeconomist.com)
Apr 5 - 11, 2010

The wheat crop target was unmet this year as total production of wheat this year was 22.3 million tons against a target of 25 million tons. The reasons were especially poor rainfall and sharp increase in fertilizer prices that dampened the fertilizer off-take. Yet the sector's credit demand is rising.

Though the total domestic consumption of wheat is not more than 22 million tons that also means the size of crop should be enough for food grain supplies locally yet the risk of hoarding and smuggling of wheat to the neighboring countries can pose risk to food security.

However the food managers have kept the option of import substitute open to cater to the need of the country. In fact, country's carried forward stock of wheat which is said to be over 5 million tons would be enough to secure food supplies.

The rising food price is a serious concern of the average income group especially due to sharp erosion in purchasing power. Sources were of the view that it was the time that agriculture products could be protected from mounting inflationary pressures by considering the use of organic pesticides and fertilizers to avoid costly synthetic fertilizers. In many countries growers are shifting on organic food to avoid food inflation.

According to agriculture sources, higher fertilizer prices slowed down the demand as urea prices were up 11 per cent and DAP prices registered a sharp increase of 21 per cent Year on Year (YoY).

Sources said that given poor rainfall posing potential risk to wheat output & farm income this year the risk of the same should be more apparent in third quarter of financial year 2010. That was depicted from 8 per cent YoY decline in urea sales and flat YoY DAP sales in Feb-10.

It may be mentioned that during second month of the current financial, the urea off-take was down 9 per cent, while DAP sales were up 42 per cent from the low base of 2009.

The agriculture activity is on the increase in the country which is quite reflected in the increasing agricultural credit disbursement by commercial and specialized banks. The credits rose 11.02 percent YOY to Rs144.703 billion in the first eight months (July-Feb) of the current 2009-10.

The focus of the growers seems on more lucrative crop like cotton which is gaining higher prices both in the domestic and international market which substantiates the estimate that the cotton crop next year would be larger compared to previous one.

According to financial sources the disbursement of credit to the agriculture sector increased by over Rs14.361 billion in July-February, 2010 when compared with total disbursement of Rs130.342 billion in the same period last year.

Overall credit disbursement by five major commercial banks including Allied Bank Limited, Habib Bank Limited, MCB Bank Limited, National Bank of Pakistan and United Bank Limited stood at Rs74.767 billion in July-Feb, 2010 compared with Rs62.632 billion in July-Feb 2009, depicting an increase of Rs12.135 billion or 19.37 per cent. Zarai Taraqiati Bank Limited, the largest specialized bank, disbursed a total of Rs41.938 billion in July-Feb, 2010, up 9.14 per cent when compared with Rs 38.427 billion in the same period last year, while disbursement by Punjab Provincial Co-operative Bank Limited stood at Rs3.441 billion in July-Feb, 2010 compared with Rs3.464 billion in the same period last year. Besides, 14 domestic private banks also loaned a combined Rs24.557 billion in July-Feb, 2010 compared with Rs25.819 billion disbursed in July-Feb, 2009.

PRIVATE SECTOR CREDIT OFF TAKE

According to latest data of the central bank, banks extended credit amounting to Rs138.4 billion to the private sector during July 1st, 2009 to March 20th, 2010 compared with Rs106.9 billion provided in the same period last year.

At a meeting of the Private Sector Credit Advisory Council (PSCAC) recently held in Karachi it was disclosed that about 63 per cent of total credit has been availed for working capital while 37 per cent for fixed investment purposes and added the main sectors that availed credit including manufacturing (including textiles), electricity, gas, water and agriculture.

It was noted that the central bank's efforts to facilitate exports have resulted in rise in banks' credit disbursement for export finance by Rs26.2 billion during the second quarter (October - December) of FY10 in contrast with a decline of Rs2.6 billion in the first quarter of FY10.

Sector-wise analysis of credit to private businesses has shown healthy growth of 6.2 per cent during Jul-Feb FY10. All major sectors availed credit however the highest share was availed by manufacturing sector (69 per cent) followed by electricity, gas & water (29 per cent), agriculture (5 per cent) etc. Out of the total credit to manufacturing sector (Rs 92.4 billion) 46 per cent was extended to food products & beverages, 41 per cent to textile and 10.7 per cent to chemicals & chemical products while spinning, weaving, finishing of textiles received Rs38.0 billion.

The meeting was attended, among others, by heads of commercial banks, representatives of agriculture chambers and trade bodies, officials of relevant federal/provincial departments, besides senior officials of State Bank of Pakistan.