Exploring the Determinants of Private Sector Credit in Pakistan: A Sectoral Analysis

Junaid Kamal; Irshad Hussain Sayed

doi:10.23762/FSO_VOL11_NO2_7

Published : 2023-06-30

Vol. 11 No. 2 (2023)

Exploring the Determinants of Private Sector Credit in Pakistan: A Sectoral Analysis

Junaid Kamal

https://orcid.org/0000-0003-1356-8407

Irshad Hussain Sayed

https://orcid.org/0000-0002-6786-2882

DOI: https://doi.org/10.23762/FSO_VOL11_NO2_7

Abstract

This study empirically explores the existence of any cross-sector differences in bank lending behaviour in Pakistan. A wider set of both demand- and supply-side variables are included, and the ARDL model is employed to estimate the results. The empirical findings confirm that significant cross-sector differences regarding the impact of different variables on private sector credit exist in the short run. Moreover, in the long run, the impact of various factors on credit to the private sector are the same across sectors. While domestic deposits positively influence credit, non-performing loans have a negative effect on credit. Interest rate has no significant effect on credit in either the short or long term. Lastly, government borrowing from commercial banks crowds out the private sector. The findings point towards a weaker transmission of monetary policy through the credit channel and support the idea that the availability of funds is more important for private sector credit penetration in a country such as Pakistan with limited resources, whereby effective policy measures are needed to stimulate savings in the economy.

Keywords:

Private sector credit, Crowding out, Money supply, Credit penetration

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Kamal, J., & Sayed, I. H. (2023). Exploring the Determinants of Private Sector Credit in Pakistan: A Sectoral Analysis. Forum Scientiae Oeconomia, 11(2), 147–159. https://doi.org/10.23762/FSO_VOL11_NO2_7

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