KARACHI: Investments made by banks in government securities continued to grow and reached Rs7.2 trillion in the quarter ended June 2016, up 27.4% compared to the same period of previous year, shows the quarterly performance review of banking sector recently released by the State Bank of Pakistan (SBP).

In comparison to the previous quarter, banks’ holdings of government securities, which constitute more than 90% of total investments, grew 4.9%.

During the April-June quarter, banks invested a net Rs239.6 billion in Pakistan Investment Bonds (PIBs), up 6.6%, followed by injection of Rs105.3 billion into the Market Treasury Bills, up 4.1%.

In addition to these, banks also stepped up their investments by around 9.7% (Rs48 billion) in other avenues such as ordinary shares, term finance certificates, bonds, etc primarily due to buoyant capital markets of Pakistan. These investments remained within the exposure limits prescribed by the SBP.

On the other side, the deposit base of banks expanded 6.8% quarter-on-quarter and 10.6% year-on-year to reach Rs11 trillion at the end of April-June 2016 quarter compared to 7.9% growth in the previous quarter and 13.6% rise in the April-June quarter of previous year.

The deceleration in deposit growth may be blamed on a number of factors including a decline in the return on deposits in line with the fall in benchmark policy rate of the SBP.

Moreover, the shift in depositors’ preference to alternative modes of savings such as prize bonds, capital markets, etc and imposition of withholding tax on cash withdrawals above Rs50,000 in a day also played their role.

Customer deposits, constituting 95% of overall deposits, show that most of the growth came from the non-remunerative current deposits, which rose Rs392 billion or 12.5%. They were followed by fixed deposits, which grew Rs82 billion or 3.4% and savings deposits, going up Rs44 billion or 1.1%.

A currency-wise breakdown of deposits shows that the entire increase had taken place in local currency deposits, which grew 8.9% during April-June 2016, while the rupee value of foreign currency deposits fell 7.9%.

In order to meet government’s funding needs and credit demand from the private sector, banks also borrowed from the central bank.

According to the weekly data, such borrowings were primarily driven by the repo market of the SBP, which injected liquidity into the system to anchor the overnight money market rate closer to its target rate. In the April-June quarter, banks also went for expanding their branch network, absorbed a considerable number of fresh employees and spread the banking infrastructure including ATMs, credit cards, etc.

The banking sector absorbed an additional 2,692 full-time employees in the quarter under review, up 1.5% from the previous quarter. The hiring was quite broad-based contributed by most of the banks.

Similarly, 72 new branches were added to the network primarily by a few medium-sized banks, an increase of 0.6% from the earlier quarter. Around 94% of bank branches were operating online on a real-time basis at the end of June 2016.

The changing dynamics of technology and business expansion led to a growth in the banking infrastructure as 275 new ATMs were installed and 12,965 new credit cards were issued during the April-June quarter.

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