As Pakistan’s economy enters into a monetary easing cycle for the first time in four years, a crucial economic barometer – the private sector credit has begun to reflect some early signs of recovery in some of the segments.
Private sector credit growth reported a 6% YoY growth in Jun-2024 already – strongest in 15 months led by growth in credit to Food, Wholesale and Information & Communication (IC) segments. Together accounting for nearly a quarter of the credit portfolio (which was ~20% almost a year ago), these segments have driven almost half of the overall credit growth.
On the other hand, the downturn in textiles, energy, and consumer financing, particularly auto loans continued. For perspective, the outstanding loans to IC sector were half of the size of Auto loans in 2022. Now, the outstanding credit to the IC sector is almost 2x of outstanding Auto loans.
We do not expect material recovery to the ongoing trend unless rates do not witness a sharp decline from current levels, complimented by improving macro-economic landscape.
Lenders may continue to prefer other asset classes in the ongoing scenario that offer relatively lower risks with similar yields. We, hence, expect loan growth to limit to single-digit in CY24.
