KARACHI: The returns on Pakistan Investment Bonds (PIBs) were further reduced on Wednesday but the banks’ offer to invest was still much higher than the target set by the government.

In the latest auction, banks were eager to park maximum liquidity offering Rs240bn bids, but the government raised Rs72.5bn against the target of Rs50bn.

Experts believe the trend reflects banks’ inability to diversify investment.

The State Bank reported that the cut-off yield on three-year PIBs was reduced by 39 basis points (bps) to 8.49 per cent. Amount raised for this maturity was Rs13 billion.

Yield on five-year PIBs was cut by 60bps to 9.14pc and the amount raised was 36bn, the highest among the three maturities. The amount offered for this tenor was also the highest at Rs138.7bn.

For 10-year PIBs the cut-off yield was reduced by just 20 basis points to 9.8pc. The amount raised was Rs11.8bn.

The government has set a Rs150bn target for PIBs for three months from February to April, but it has been raising more than the targets.

The PIBs auction reveals that the government is still in need despite heavy borrowing for budgetary support and the banks are still investing in the papers despite falling returns.

Another report of the SBP shows that despite drastic cut in the policy interest rate (from 10pc in November to 8.5pc now), the banks are unable to find borrowers from the private sector, whose credit off-take has fallen significantly compared to last year instead of rising.

The SBP’s report shows that the private sector’s credit off-take fell by 50pc to Rs144bn during the last seven-and-a-half months of this fiscal year from Rs286bn in the comparable period of preceding year.

The auctions of PIBs and treasury bills have clearly exposed banks’ inability to use their liquidity for higher profits through participation of the private sector.

“The government is equally responsible for this low credit to private sector,” said a senior banker.

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