Banks disburse Rs583.8 billion for infrastructure projects in July-Dec

KARACHI: Financial institutions provided a cumulative Rs583.8 billion worth of loans for construction of infrastructure projects in July-December 2016, showing a 28.8 percent increase over the same period of the previous year, the central bank said on Monday. 

The project finance market is growing, backed by the government’s economic stimulus initiatives and China-Pakistan Economic Corridor (CPEC), the State Bank of Pakistan said in its infrastructure finance review.

Banks and development finance institutions (DFIs) extended Rs453.2 billion infrastructure credit in July-December 2015. Such loans registered a half yearly growth of 12.5 percent to stand at Rs518.8 billion in January-June 2016.

“The total amount outstanding at banks, against infrastructure finance at the end of December 2016 reached Rs471.2 billion, recording an increase of 12.8 percent when compared with Rs417 billion at the end of June 2016,” the SBP said in its review.

Infrastructure project finance deals with loans used to build power plants, roads, bridges, and flyovers. Besides, such loans are also obtained by telecom, petroleum, and oil and gas exploration companies.

The review revealed that banks and DFIs provided an amount of Rs297.6 billion in power generation finance, followed by Rs45.9 billion given for the development of road, bridges and flyovers during the six-month period under review.

Banks disbursed Rs38.8 billion to telecom, Rs29.4 billion to oil and gas exploration, and Rs17.5 billion to the petroleum sector in July-December 2016.

The SBP’s review showed that during this period, banks and DFIs sanctioned Rs1.104 trillion for the development of infrastructure, compared against Rs706.9 billion in the corresponding period of 2015.

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Analysts said a number of energy projects are underway, while several highways 
and motorways are also being constructed by the federal and provincial governments under the CPEC framework in certain parts of the country.      

“Since the economic activity is growing, infrastructure spending going up and interest rates are at multi-decade low levels, there has been a marked increase in bank appetite for infrastructure projects,” said a financial analyst.  

“The central bank is also pushing financial institutions to enhance the outreach of infrastructure credit in the country.” SBP issued prudential regulations last month on important features of infrastructure project finance, facilitating banks to assess the cash flow generating capacity of the projects.

These included the requirement of technical feasibility, comprehensive risk assessment, project insurance, technical monitoring of the project during loan tenure, and requirement of supply and off-take agreements.

The SBP said Pakistan faces acute lack of infrastructure facilities, and energy, communication networks, water and sanitation, educational institutions and recreational facilities were some major infrastructure areas requiring urgent attention.

Banks are encouraged to prepare their own structured lending schemes for the development of infrastructure project financing. The central bank is also encouraging banks to develop infrastructure products based on Islamic principles.

Published in The News, February 28th, 2017