Investment by banks in govt papers surges 33pc in 12 months

Published March 27, 2021
Banks investment in government papers increased by 33 per cent year-on-year in February while advances showed a poor growth of less than 4pc during the same period. – AFP/File
Banks investment in government papers increased by 33 per cent year-on-year in February while advances showed a poor growth of less than 4pc during the same period. – AFP/File

KARACHI: Banks investment in government papers increased by 33 per cent year-on-year in February while advances showed a poor growth of less than 4pc during the same period.

Data released by the State Bank of Pakistan on Friday shows that the banks have been making investment at a faster pace than making advances, which are usually consumed for the growth of the economy.

Banks invest mostly in government papers that offer risk-free and higher returns. The government is in need of borrowing from banks as the SBP has refused it to provide liquidity. For the last two years, the central bank has stopped providing liquidity to the government creating a bigger space for the banks to invest in government papers.

According to the data, the investment of the banks rises to Rs11.611 trillion till February 2021 compared to Rs8.725tr made till Feb 2020, an increase of Rs2.886tr, or 33pc.

However, the advances by the banks were extremely poor as it increased by just 3.8pc during the same 12-month period. The advances reached Rs8.527tr from Rs8.212tr in Feb 2020 — an increase of Rs315 billion, or 3.8pc.

The banks received 16.5pc higher deposits during the same period allowing them to make maximum investment in government papers.

The stock of deposits of the banks reached Rs17.256tr by Feb 2021 against the total deposits of Rs14.815tr in Feb 2020 — an increase of Rs2.441tr, or 16.5pc.

The higher investment and lower advances show that banks are not ready to take the risk of extending loans due to the impact of the coronavirus pandemic since their investments in government papers were enough to help them reap higher profits. Even the negative impact of the coronavirus on the economy has not affected the banks, which continue to operate at a profit.

Published in Dawn, March 27th, 2021

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