KARACHI: Bank lending to non-bank financial institutions (NBFIs) is on the rise as the private sector pays off its debts; the first quarter of this year’s fiscal year (FY25) saw a record of Rs400 billion.
The economy is significantly impacted by non-banking financial institutions (NBFIs), which offer a variety of financial services without banking licenses. According to the most recent data from the State Bank, credit flows to NBFIs totaled Rs399.86 billion in FY25, or 91% of the total loan stock for NBFIs. The total loan stock was Rs441bn as of June 30, 2024.
Net debt retirement by NBFIs was Rs71 billion in FY24, and sector credit was Rs144.7 billion in FY23. Even though the country’s financial system is centered on banks and NBFIs only make up 5.8% of the system’s assets, the industry has grown steadily over time and now provides essential non-bank financial services.
In CY23, NBFIs operated in an environment with high interest rates, inflationary pressures, decreased economic activity, political uncertainty, and external imbalances.
According to financial industry experts, asset management, which dominates the NBFI sector, attracted a lot of liquidity and made a lot of money. The sector expanded by 34.5 percentage points in CY23, up from 26.7 percentage points in CY22, largely due to asset management, which holds 89.6 percentage points of NBFI assets. Compared to 27.5 percent in CY22, this segment’s asset base grew 39.6 percent to Rs3,089 billion in CY23. This market is dominated by portfolios and mutual funds.
In CY23, mutual funds and portfolios saw an increase of 43.7 percent in assets under management (AUM), further expanding their asset share in the NBFI sector. Islamic income and money market funds, which account for 64.7 percent of NBFI assets, drove the 41.8 percent growth in mutual funds.
NBFIs are able to generate returns despite high interest rates thanks to the strong equity market, according to analysts. Since June 2024, the State Bank has reduced the interest rate to 17.5 percent, with additional reductions anticipated in the November 4 monetary policy. Companies that manage assets keep a close eye on potential investment and profit opportunities.
Investment finance services, leasing, housing finance, venture capital, discounting services, investment advisory, asset management, and other businesses specified by the government are all examples of NBFIs, which are businesses that have been granted licenses to carry out a variety of activities by the Securities and Exchange Commission of Pakistan. The NBFI sector also encompasses non-bank microfinance institutions.
On the other hand, Topline Securities reported on Monday that mutual funds had purchased shares totaling $61 million between October 25 and November 30, which represented the highest net monthly purchase since April 2018.
