Decline in private sector credit decelerates in June

• Indicates banking sector ramping up fresh credit activities
• Biz, individuals borrowing more amid record-low interest rates
• AWPLR further down by 32 bps and now stands at 7.63%
• Money supply up as govt. continues to borrow at faster pace

The decline in the private sector credit in June decelerated from May indicating  that the banking sector is ramping up fresh credit to the private sector under both the Central Bank’s refinance credit scheme and from their own funds.

Banking sector credit to the private sector declined by Rs.54.1 billion in June, after falling by Rs.70 billion in the month before, as the country is making steady gains in economic activity after two months of lockdowns. 

The Central Bank has approved a record number of loan applications under its refinance scheme to provide business loans at 4 percent for the pandemic-hit businesses and self-employed personnel while the banks are coming up with myriad of loan schemes to assist businesses at rates as low as 6 percent. 

This has created an unprecedented enthusiasm among borrowers to access credit and lenders to grant new credit as the Central Bank underwrites up to 80 percent of such loans. 
Meanwhile, the Average Weighted Prime Lending Rate (AWPLR)—the rate at which loans are extended to prime customers—for the week ended last Friday fell further by 32 basis points (bps) after declining 16 bps in the week earlier. The AWPLR now stands at 7.63 percent. 

The AWPLR has fallen by 48 basis points since the latest policy rate cut of 100 bps delivered on July 9, indicating that the monetary policy transmission has become fast than earlier. 
Meanwhile, the money supply measured by broad money or M2b rose by 14 percent in June, accelerating from 13.7 percent in May indicating that the money circulation in the economy has increased despite the private sector credit de-growth. This is because the government is borrowings at a faster pace. 

The net government borrowing from the banking system increased by Rs.133.8 billion in June after borrowing Rs.164 billion in May. 

The total outstanding market liquidity was a surplus of Rs.118 billion by the end of last week, compared to Rs.159 billion by the end of the previous week, Central Bank said. 

Meanwhile, the total credit extended to public corporations declined by Rs.1.3 billion in June after increasing to Rs.18.6 billion in May.