KARACHI: Banks’ investment in government papers surpassed the volume of deposits they raised in 2015 by a big margin.
Collective investment made by the banks stood at Rs1.2 trillion in the first 11 months of this calendar year against mobilisation Rs699bn billion bank deposits during the same period. Disbursement of credit actually dropped in the year as investment by banks increased by 100 per cent over the last calendar year.
According to the latest report of the State Bank, scheduled banks raised Rs699bn during the first 11 months (January to November), raising the total deposits to Rs9.162tr.
During the first 11 months of the calendar year 2014, deposits increased by Rs584bn, showing that the size of deposits raised in 2015 was higher by Rs115bn.
However, investment during the 11 months was to the tune of Rs1.204tr which is close to double than the deposits of Rs699bn raised during the same period.
It indicates the widening liquidity gap in the banking system which is met through borrowing from the State Bank.
The SBP on Monday conducted open market operation and injected Rs1.177tr into the banking system providing support to the banks at the end of calendar year.
The banks used to fill their liquidity gap with borrowed money through State Bank to improve their balance sheets at the end of banking year. The schedule banks’ urge for investment, particularly in the government papers, was so high that their investment was 100 per cent higher than the investment made during the same period of 2014.
Banks invested Rs615bn in 2014 compared to massive investment of Rs1.204tr made in 2015. Banking analysts said that almost all banks have changed their shape and have become investment banks since advances have declined, and have no match compared to the size of investments.
During the 11 months of this year, advances fell to Rs222bn while the same was stood at Rs271bn in the same period of the previous calendar year, a decline of Rs49bn.
Most of advances were being made for working capital and this practice was being followed for the last seven years.
The business community used to complain that banks were not willing to extend loans despite sharp cut in the interest rate which fell to as low as 6pc. Private sector credit off-take changed its trend from October when it increased by Rs79bn and in November it again increased by Rs39bn. Privates sector credit off-take increased by 70pc in less than six months of this fiscal year.