KARACHI: Small banks are more aggressive in making advances than large banks although the five biggest players have substantially more deposits, according to the quarterly compendium released recently by the State Bank of Pakistan (SBP).

At the end of June, the five banks had a share of 52.2 per cent in total assets. But their advances-to-deposits ratio was 42.6pc, lower than the rest of the banking sector.

The average advances-to-deposits ratio for the sixth-to-10th largest banks was 54.9pc while that of the 11th-to-20th largest banks was 50pc. The smallest eight banks had an average advances-to-deposits ratio of 77.6pc. This shows the willingness of small banks to aggressively extend advances and take higher risks as opposed to their larger counterparts.

Advances by the top five banks were low mainly because of their huge investment in government papers

The share of the top five banks in total banking deposits was 52.4pc. The share in total deposits enjoyed by the sixth-to-10th largest banks was 23.5pc while that of the 11th-to-20th largest banks was 19.3pc. The share of the smallest eight banks was 3pc.

Lower advances by the top five banks were due to their huge investment in government papers. Big banks had a share of 58.3pc in total investments by the banking industry. Almost 89pc of their investments were in government papers. Despite a low interest rate, large banks relied heavily on government papers for their risk-free earnings.

The private sector’s credit off-take substantially increased in 2016-17 rising to Rs747.9 billion from Rs446.5bn in the preceding year, but the share of large banks in advances did not reflect their potential to pump money in the economy.

Published in Dawn, September 10th, 2017