Credit break up by borrowers – 2QFY11 positive for private sector!

GoP grabbed the highest share: GoP’s pie in total incremental borrowing stood at 58% or PKR268bn during 1HFY11. However, monthly trend depicts a reversal, with GoP’s incremental borrowing standing at negative PKR29bn during December 2010. Foreign inflows supported the funds starved regime, helping it to curtail reliance on the Central Bank.

2Q remained positive for the private sector: Private sector borrowing depicted positive growth in 2QFY11, with 9% QoQ rise during the said period compared to 1% QoQ decline in the preceding quarter. This also raised the incremental share of private sector in non-GoP sector to 41% during 1HFY11.

Consumer financing continues its downward journey: Net decline in consumer financing during 1HFY11 stood at PKR16.3bn compared to PKR28.4bn decrease in 1HFY10. Auto segment led the way with net attrition of 11% FYTD, followed by 9% FYTD decline in Credit Cards’ financing.

Next half outlook: We view the uptick in credit demand from private sector as a seasonal phenomenon and is expected to come down in 2HFY11. As per recent developments, it seems extension of IMF-SBA has renewed pressure on GoP to limit current expenditures and maintain net zero borrowing from SBP. Given these efforts materialize; we believe GoP’s incremental borrowing will quite likely remain in low digits.

GoP grabbed the highest share

Mainly driven by 11% FYTD surge in the GoP’s borrowing, total credit offtake during 1HFY11 was up 8.1% FYTD compared to 6.8% FYTD growth in the same period last year. The break up reveals that the GoP’s pie in total incremental borrowing stood at 58% or PKR268bn during 1HFY11. However, monthly trend depicts a reversal, with GoP’s incremental borrowing standing at a negative PKR29bn during December 2010 after showing the highest 5% MoM rise in preceding month of the current year. We believe materialization of pledged aid by international donors and release of funds under CSF helped the funds starved regime to reduce borrowing from the Central Bank.

2Q remained positive for the private sector

During 1HFY11, non-GoP sector’s incremental borrowing stood at PKR198bn, up 6% FYTD, though marginally down from 6.8% FYTD increase in 1HFY10. Credit to private sector witnessed the highest FYTD growth of 7%, followed by 5% FYTD increase in credit to NBFCs. Credit to PSEs, however, shrunk by 0.2% FYTD compared to a hefty jump of 29% FYTD in the same period last year. Main growth in private sector borrowing was witnessed in 2QFY11, with 9% QoQ rise during the said period compared to 1% QoQ decline in the preceding quarter and also outpacing 7% QoQ growth in private sector’s credit during 2QFY10. This, hence, raised the incremental share of private sector in non-GoP sector during 1HFY11 to 41% as against 30% in 1HFY10.

Consumer financing continues its downward journey

Consolidation in consumer financing persisted during 1HFY11. Net decline in consumer financing during 1HFY11 stood at PKR16.3bn compared to PKR28.4bn decrease in 1HFY10. Auto segment led the league with net attrition of 11% FYTD, followed by 9% FYTD decline in Credit Cards’ financing. Housing finance and Personal Loans observed respective FYTD decrease of 6% and 5% during 1HFY11.

Next half outlook

We view the uptick in credit demand from private sector as a seasonal phenomenon and is expected to come down in 2HFY11. As per recent developments, it seems extension of IMF-SBA has renewed pressure on GoP to limit current expenditures and maintain net zero borrowing from SBP. Given these efforts materialize; we believe GoP’s incremental borrowing will quite likely remain in low digits.

Economic & Political News

POL prices: Ogra expecting 12% increase in February

Ogra is expecting 12% increase in prices of petroleum products during month of February 2011 due to hike in global oil prices. If the government fails to adjust the expected hike in domestic oil prices by 12% to align them with the rise in global prices for the month of February, revenue from Petroleum Levy (PL) may decline to zero. In December 2010, as global oil prices rose, the government kept oil prices unchanged by adjusting PL downward, resulting in a revenue loss of PKR2bn. In January, the oil prices were raised but, after a week, the government withdrew its decision due to intense political pressure. This resulted in a revenue loss of PKR5bn–on account of PL collection.
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