A record number of loans were issued to the private sector within the first half of fiscal year (FY) 2024-25, with the textile sector receiving the majority of this credit.

 

According to reports, the textile sector recieved the majority of this newly issued credit.

 

Despite being the largest borrower, the textile sector revealed that 40 percent of spinning mills have shut down. The halting of operations cannot be attributed to the lack of credit alone, as government policies are also responsible.

 

According to the All Pakistan Textile Mills Association (APTMA), the closing down of approximately 40 percent of spinning mills was for a multitude of reasons, one of them being the reported 18 percent sales tax on inputs, which is considered the primary reason for the closures.

 

Furthermore, the association outlined the dire effects of closures on Pakistan’s economy, as exports will be hurt. There is merit to this claim as the textile sector currently brings in the lion’s share of export revenues for the cash-strapped country.

 

As per reports, the flow of loans from banks to non-financial institutions was the highest during the first half of FY 2025 as opposed to bank loans during the last three years.

 

Analysts are speculating that the result of the loan injections will become apparent during the next 1-1.5 years. The time duration, however, is not explicitly specified as financial experts are not aware of where the loan amounts have been invested.

 

Banks have been lending vast amounts of credit as they aim to avoid an additional tax of 15 percent which Islamabad was keen to impose. Banks were facing this tax as a result of low Advance-to-Deposit Ratios (ADR), which they had to correct by December 2024 to 50 percent.

 

ADR refers to the fraction of funds banks have lent out to the private sector. Low levels of credit being extended to the private sector were hampering the growth of businesses, which could translate into a stagnation of the economy.

 

Another reason for the rise in the issuance of loans is the slashing of interest rates by nine percent since June 2024. Reports reveal that banks have injected a staggering 1.467 trillion rupees into non-bank financial institutions (NBFI). The corresponding amount for the same period last year stood at just 1.398 trillion rupees. This translates into a rise in the issuance of loans by approximately five percent.

 

During the first half of FY 2025, conventional bank lending reached 722 billion rupees, while Islamic Bank lending crossed 625 billion rupees.

 

Islamabad has been borrowing less than the maturity amount as per reports. This has allowed for funds to be allocated to private-sector projects instead.