KARACHI: Scheduled banks’ investment in the government securities has reached around Rs7 trillion – slightly above the stock of advances of banks.

The State Bank of Pakistan’s (SBP) latest report showed that the stock of scheduled banks’ holdings of government securities on April 30 was Rs6.975tr.

During 2017-18, the government kept retiring debts of banks and relied entirely on SBP for its budgetary borrowing in FY18. Despite the debt retirement, the banks’ investment in government papers was still higher than the advances. Another report of the central bank shows that up to April 30, their net advances stood at Rs6.839tr.

The holdings of government papers are earning profits for banks but that money is not productive for the economy. During FY18, the government has been borrowing through short-term market treasury bills while retiring the long-term Pakistan Investment Bonds.

Since more debts are being retired compared to fresh borrowing, as reported by the SBP on June 1, the net result is that the government has so far retired Rs1.456tr of the scheduled banks in FY18.

During the current fiscal year, the scheduled banks slightly increased their overall credit to private sector but did not show any significant change over the past year, particularly in the wake of a low interest rate scenario.

Since the banks’ Rs7tr is lying with the government and yielding risk free profit for them, banks do not like to take pain for extending loans to private sector on a large scale. So far the banks’ lending to private sector during 2017-18 was about Rs559bn, up 10.26 per cent from Rs507bn credit to private sector in the same period of 2016-17.

Even a low interest of 5.75pc prevailing for more than a year could not lure the private sector. It has been reviewed twice this fiscal year and currently stands at 6.5pc. Private sector complains that banks do not extend loans at cheaper rate as they find it easy to get low but risk-free returns on their investments in the government papers.

The stock of banks’ investment in Pakistan Investment Bonds has fallen to Rs2.71tr while the investment in the market treasury bills increased to Rs4.437tr.

Non-banks like insurance companies and others are also in competition with banks to invest in the government papers. The overall investment of non-banks in the government papers reached Rs1.984tr.

The SBP reported that the banks’ share in the government papers is 77.9pc while the share of non-banks is 22.1pc.

Published in Dawn, June 3rd, 2018