KARACHI: The government failed to borrow from banks as per the target set for the auction of treasury bills on Wednesday, while banks refused to accept more than 50 per cent amount offered by the State Bank of Pakistan (SBP) through open market operation.

The government wanted to raise Rs125 billion through the auction but banks offered bids for only Rs54.7bn which reflects a change in the investment trend. Banks, which have invested heavily in Pakistan Investment Bonds (PIBs), have now shifted their focus to short-term T-bills for the last few months.

Analysts believe that investment in PIBs was slower due to significant fall in the returns on all tenors (three, five and 10 years), mainly because of low inflation.

However, T-bill rates were unchanged on Wednesday. The government raised Rs48bn for three-month and Rs5.8bn for six-month tenors, both at 6.48pc cut-off yield. The total amount raised was Rs53.8bn.

Another report of the State Bank shows that it offered Rs1.3 trillion to inject into the banking system but banks accepted only Rs624bn. It indicates that banks were not willing to borrow from the SBP at 6.07pc.

During the second quarter (April-June) of this year, banks after-tax profit jumped 52pc year-on-year while their dividend income rose 46pc.

The banks, however, were short of liquidity despite these profits, and the State Bank has been injecting regularly over a trillion rupees, mostly on a weekly basis.

Analysts believe falling interest rate, which was reduced to 6pc in the last monetary policy announced on Sept 12, has forced banks to diversify their investments instead of focusing on government papers. Banks’ investments in government papers by the end of August were Rs5.767 trillion.

However, another SBP report shows that the private sector has yet to turn towards the banks for cheaper loan. In fact, its credit off-take was significantly lower in the first quarter of this fiscal year compared to the same period a year ago.

The State Bank reported that the private sector kept retiring debt in the first quarter of this fiscal year, amounting to minus Rs76bn compared to minus Rs15bn in the same period of last year.

The central bank started slashing the interest rate from November 2014. It was cut by 300 basis points during the FY15 alone, but the private sector credit off-take remained much lower than the preceding year.

The trade and industry believe that despite low interest rate the situation in the country is still not business-friendly which is why the domestic as well as foreign investments are negligibly small.

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