KARACHI: Conventional banks lending to the private sector has gone up by 400 per cent in slightly over five months (July 1-Dec 7) of the current fiscal, according to the latest report of the State Bank of Pakistan.

The SBP report notes that Islamic banks lagged behind significantly in lending during last year, but this year the lending went up by 8 times compared to the five months of previous fiscal year.

The lending by conventional banks was much bigger at Rs268.5 billion this year compared to Rs65bn in the same period of last fiscal year. Islamic Banks doled out Rs6.2bn in the first 5 months of the previous fiscal year which increased by 8 times to Rs48.5bn in the same period this year.

The lending of banks was more despite higher interest during the current fiscal year.

In the last monetary policy, the State Bank increased policy interest rate by 1.5pc to 10pc. This high rate makes lending risky for the banks. However, the trend shows that banks as well as borrowers were ready to take the risks.

It is believed that banks would not be able to take more risks as they fear more non-performing loans due to higher interest rate. The second half of the current fiscal would make the situation clearer.

Higher lending of both Islamic Banks and conventional banks were due to low availability of government papers. The government has been borrowing from the central bank and off-loading its debt to commercial banks.

Conventional banks are offered short-term treasury bills but the yield is quite low than the long-term bonds including the Pakistan Investment Bonds. Recently the government has indicated to borrow about Rs200bn through Islamic Banks. The Islamic banks complain that they have little option for investment and that their liquidity remains unused. Due to this higher liquidity the Islamic banks have aggressively started lending during the current fiscal.

Published in Dawn, December 26th, 2018