Textile sector’s credit demand surges in FY11: State Bank of Pakistan

KARACHI –– Textile sector’s credit demand has increased steeply by 110 per cent to Rs 177 billion in first half of the fiscal year 2010-11 compared with corresponding period of previous fiscal year. The State Bank of Pakistan (SBP) in its recent report said more than half of private sector credit went to the textile sector reflecting higher input prices, especially that of raw cotton.

Private demand for credit picked up with outstanding stock of loans increased by 51 percent to Rs 208.8 billion in July to February compared with same period last fiscal year. The credit to private sector has surged substantially with an increase in seasonal demand for working capital and trade related loans.

In addition to textiles, the impact of rising input prices on credit demand was also visible in other industries such as rice with Rs 22 billion; edible oil Rs 22 billion with and cement with Rs 6.3 billion in the same period.

NPLs to loan (infection) ratios for the textile and agri-business recorded improvement over the start of the fiscal year, as well as the previous quarter, SBP said.

The improvement in the ratio for the textile sector is attributed to an increase in advances to sector during Q2 FY11. In addition, improvement in textile exporters’ margins on account of increase in export prices also enhanced their ability to retire some of their loans. On the other hand, the improvement in the ratio for agri-business reflects better repayment capacity following the rise in agricultural incomes due to the increase produce prices (e.g. cotton, sugarcane).

In contrast to textiles and agri-business, the infection ratio deteriorated for the auto sector primarily due to net retirement.

On the other hand, Gross Non-Performing Loans (NPLs) increased by Rs 58 billion to reach Rs 517.9 billion by end-Dec 2010, compared with an increase of Rs 34.1 billion in the same period last year. Not surprisingly, over one-third of this increase in NPLs came from the textile and energy sectors.

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