KARACHI: Bank investments in risk-free government papers increased 36.5 per cent year-on-year in January while advances registered poor growth mainly due to slow economic activities.

The State Bank of Pakistan (SBP) latest data showed that total deposits of scheduled banks increased 16.4pc year-on-year to Rs17.08 trillion in January from Rs14.67tr.

During pandemic consumption dropped sharply as people avoided travelling, marketing and other economic activities resulting in creation of huge liquidity for the banks.

However, on a month-on-month basis, bank deposits were down 4.4 per cent in January due to a high base effect. Usually in calendar year closing banks make their best effort to show higher deposits as a result in December 2020 the deposits grew to Rs17.875tr.

The advances could not increase as per the expectations of the State Bank and the government. The interest rate was drastically reduced by 6.25 per cent to 7 per cent from 13.25pc by mid of 2020 but the private sector did not show demand.

In January, gross advances of all scheduled banks increased by 3.7pc year-on-year to Rs8.467tr compared to Rs8.164tr in the same month last year.

However, the investment in government papers went up to Rs11.421tr in January from Rs8.366tr in January 2020; a growth of 36.5pc.

Experts said higher bank investments in government securities reflects poor growth in advances while it also shows slow economic expansion as well.

Advances-to-deposit ratio fell to 50pc in January from 56pc, clearly indicating that less money could join the real economy.

The investment to deposit ratio increased to 67pc year-on-year from 57pc, reflecting the investment trend and demand of the liquidity.

Published in Dawn, February 10th, 2021