Corporate sector received the largest
chunk of 54 per cent of the total credit extended by the
financial sector in 2003, followed by small and medium
enterprises or SMEs that received 19 per cent.
According to a report titled Pakistan:
Financial Sector Assessment 2003, agriculture and consumer
finance sectors each received about 8 per cent of the
banking system credit in the last year.
The report prepared by the State Bank
was released to the press here on Friday. It can also
be accessed at the SBP's website. An accompanying press
release, quoting from the report, said that Pakistan's
financial sector grew robustly during last year adding
Rs.542.7 billion worth of assets which represent an increase
of 15.3 per cent over the base of 2002 and now account
for almost 85 per cent of the country's GDP.
Fixed investment during 2003 formed 26.2
per cent of total credit to the corporate sector. Rapid
growth took place in 2003 both in SME financing and agriculture
credit. SME financing registered a growth of 72 per cent
and rose from Rs145 billion to Rs251 billion by June 2004.
Agriculture credit disbursements grew
in the same period by 27 per cent increasing the outstanding
loan stock from Rs804 billion to Rs846 billion, says the
report.
For the second year in a row, the country's
financial savings growth rate was in double digits. The
last fiscal year witnessed 15.8 per cent growth in financial
savings on top of a 10 per cent growth in the previous
year. As a result, financial saving as a percentage to
GDP increased to 70 per cent.
Almost one half of national savings are
now generated by the financial sector. Three years ago,
this ratio was only 28 per cent. This remarkable achievement
has been possible because of the improved efficiency and
soundness of the financial sector.
This can be seen from the fact that the
average spread earned by the banks has declined to 4.4
per cent in 2003 from 7.1 per cent in 2001. The decline
took place despite a much larger fall in the average return
on advances and investment (from 13.3 per cent to 6.6
per cent - 670 basis points) earned by the banks compared
to the lowering of the deposit rate (from 6.2 per cent
to 2.1 per cent - 410 basis points), the report added.
The report is the third in its annual
series of assessments. Earlier two reports gave the assessment
for periods 1990-2000 and 2001-2002. The salient feature
of FSA report for 2003 is that in addition to banking
and non-bank institution provides an enhanced coverage
of insurance industry and social protection funds which
were not covered in earlier assessment.
The report highlights and makes an assessment
of the rapidly changing environment of the financial sector
in Pakistan and presents an overall picture of its performance
for the year ending 2003.
The report says that different indicators
of financial sector development and depth have shown improvement
in recent years; ratios of M2, financial assets and stock
market capitalization to GDP have increased. "These
indicators are also positively correlated with GDP growth,
total factor productivity and incremental capital,"
says the report.
"This indicates that both the quantity
and quality channels are functional in our economy. In
fact, the quality channel that works through the impact
of financial development on increases in productivity
and capital intensity is quite strong in our economy.
This again shows that our potential GDP is much higher
than the actual level and financial development will go
a long way in realizing this potential."
"A comparison with select peer countries
(India, Bangladesh, Sri Lanka, Philippines, Thailand,
Turkey, Malaysia and Korea) indicates that the financial
sector still needs to be developed further."
