KARACHI: Despite high hopes of the finance minister for greater credit off-take by the private sector, poor deposit growth and higher attraction of government’s papers slowed down the credit flow, making the country having lowest advance-to-deposit ratio (ADR) in the region.

The attraction of government papers with zero risk has changed the banking in the country. The ADR in Pakistan, about 54 per cent, is the lowest in the region compared with India’s 76pc and Bangladesh’s 80pc.

Both the countries have been enjoying high economic growth rate compared to Pakistan.

The credit off-take by the private sector grew by just 4 per cent since the start of the outgoing fiscal year. The growth is even lower during the last two months.

Finance Minister Ishaq Dar recently said the government’s lesser borrowing from the banking system provided space for the private sector to use the banks’ money for growth. The government’s borrowing from the scheduled banks till May 23 was Rs339 billion compared to Rs780bn during the same period last year.

Deposits of the banking sector grew by only 0.25pc since January to April this year, increasing by just Rs19bn.

Despite lesser government borrowing as claimed by the finance minister, the banks have invested heavily in the Pakistan Investment Bonds (PIBs) setting new record.

A latest report of the State Bank showed that the banks’ holdings of the PIBs till April this year rose to Rs1.844 trillion which practically made the banks short of cash. The SBP injected liquidity six times during May to fill a gap of more than Rs400bn.

“Banking sector credit off-take remained weak, growing by only 1pc since March 31, 2014,” said a JS research report issued on Friday.

Investments during this year have grown by 11pc since the start of the year showing heavy participation of banks in PIB auctions, said the report.

Published in Dawn, June 8th, 2014