KARACHI: The profit-making banking industry depends largely on investment in government papers and the practice continued in the first quarter of the calendar year 2016.

Banks raked in net profit of Rs53 billion in the first quarter, said State Bank in its Quarterly Performance Review (QPR) issued on Thursday.

The report shows that the banking industry is in good health and would remain profitable as long as it continues to invest in government papers.

The report showed that till March, banks invested Rs7.421 trillion and most of the investment was made in government papers.

This growth was mainly contributed by banks investment in government securities (mostly Pakistan Investment Bonds) as overall advances observed seasonal decline owing to net retirements against commodity financing and small and medium enterprises (SMEs) financing, said the report.

The investment trend hit the advances of the banking industry, which fell during the quarter of January-March 2016.

Despite drastic fall in the interest rate which grossly slashed returns on government papers, banks were not inclined to change their business strategy.

During the quarter, banks net investment increased by Rs540bn to Rs7.421 trillion, but advances could not see increase during this period. In fact, advances of the banking industry fell by Rs34bn to Rs4.782tr.

Though lending is negative, non-performing loans increased during the quarter. The report shows the NPLs of the banks in December 2015 were Rs605bn. The new calendar year witnessed an increase of Rs14bn to reach Rs619bn.

“The deposits – sensitive to seasonal fall in overall advances – slightly declined by 0.6pc during March 2016 with dip in current deposits and fixed deposits. However, saving deposits increased by 3.6pc. Consequently, borrowings from financial institutions (mostly SBP) provided the funding necessary for asset expansion, said the SBP.

The banking industry failed to expand its influence on economy while government appeared equally responsible for banks’ current trend of investing only in government papers.

The details provided by the State Bank’s quarterly review showed that on year-on-year basis, advances increased by 10.3pc in the first quarter ended in March 2016, but quarterly growth of advances was just 0.7pc.

However, growth rate of investment was 24.6pc on year-on-year basis in March 2016 while quarterly growth of investment was 7.8pc. It reflects strong growth rate which was just 2.5pc in the previous quarter ending December 2015.

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