KARACHI, Jan 14: Political uncertainty and tight monetary policy finally resulted into much slower credit growth during the year 2007, while they changed investment pattern towards the government papers.

Banking sector witnessed the slowest credit growth in the last five years but investment in the government papers rose by 56 per cent.

The available official facts about the banking sector showed that deposits grew quite impressively during 2007. The deposits grew by 19 per cent.

“Due to the high growth in money supply (M2) and support witnessed from foreign inflows, total deposits of the banking sector grew by an impressive 19 per cent in 2007 and reached Rs3.57 trillion as on Dec 29,” said Atif Malik, a researcher at JS Research.

The deposit growth rate was recorded at just 13 per cent in 2006, he added.

In FY07, money supply grew by 19.32 per cent which was mainly due to build-up in Net Foreign Assets (up 38.65 per cent) and higher growth in reserve money (up 20.88 per cent).

Amid political uncertainties and the State Bank’s tighter monetary stance leading to high interest rates, credit growth momentum in Pakistan during 2007 slowed down as total advances growth in first nine months (Jan-Sep) stood at only 2 per cent.

In last quarter (Oct-Dec), however, due to the seasonal credit demand, credit disbursement picked up as gross advances of the banking sector reached Rs2.65 trillion — up by 10 per cent, in 2007.

After adjusting advances against provisions, net advances of the industry arrived at Rs2.51 trillion.

This 2007 advances growth of the banking sector is still slower as compared to its last four-year (2003-06) average annual growth of 25 per cent.

Reasons for this slowdown, as indicated recently by the SBP governor, include: banks’ cautious lending stance, portfolio restructuring and branch network rationalising.

At end of 2007, nevertheless, credit penetration in Pakistan increased as it reached 30 per cent of the GDP (gross domestic product).

Owing to low credit growth and high influx of deposits, banks during 2007 parked their incremental liquidity in investments, mainly in government papers (T-bills). Resultantly, the banking sector total investments increased by a massive 56 per cent in 2007, reaching Rs1.21 trillion as on Dec 29. This trend was also supported by increasing of cut-off yields of T-bills by the SBP in first half of 2007.