KARACHI: The State Bank on Friday injected Rs414 billion into the banking system to save the banks from liquidity crunch.

The banks had been investing in long-term government papers and were short of cash as indicated by the liquidity gap which was over Rs400bn. Last year the gap was over Rs500bn.

Under the new scenario of interest rate and a possible decline in next two months, banks have accumulated high-yielding long-term government papers. It will earn more profits for banks and mostly it will increase the net interest margins.

The banking industry is reaping high profits due to investment in long-term papers. The lowest rate on three-year PIBs was more than 12.09 per cent. The holdings of PIBs till April 2014 were Rs2.77 trillion.

“With clear signs of the economic recovery, banks will be major beneficiaries in coming years,” said a research report of the Topline Securities issued on Friday.

The report further identified the credit appetite of private sector that would not only yield more profits for banks but spur growth in the economy.

“As credit appetite has started to grow, local banks are all prepared to finance power, textile, telecom and consumer sectors when credit penetration is at multi-year low of 19 per cent of GDP,” said the report.

However, another report of the State Bank said that despite very low credit offtake by the private sector during the last five years, the infected loans did not see much change.

The non-performing loans of all banks till end of 2013 (calendar year) were Rs605 billion which slightly slipped to Rs602bn till March 2014. The credit to private sector rose to Rs296bn in the first 10 months of the current fiscal year which is encouraging but most of the amount were utilised for working capital.

The bankers said several opportunities have emerged for banks to make advances at attractive rates but the risk was the main factor which kept them glued to the government papers.

“The private sector attracts banks but they would wait for another fiscal year to watch the economic scenario,” said a senior banker.

Bankers said the private sector despite all its attractions is still risky and would not be able to borrow as much as it is felt in the private sector or by the economists and analysts.

Published in Dawn, May 24th, 2014