KARACHI: Banks’ advances witnessed a significant increase of 21 per cent in the outgoing fiscal year (FY22), reflecting the higher economic growth during the year ended on June 30.

The latest data issued by the State Bank on Thursday showed that total advances reached Rs10.886 trillion by the end of FY22 from Rs8.996tr in FY21, an increase of Rs1.889tr or 21pc.

The financial year, which saw an economic growth of 6pc, noted a very high growth in advances by both conventional and Islamic banks, with the advances by the private sector increasing by 142.5 per cent.

The conventional and Islamic banks collectively made advances of Rs1443 billion, compared to Rs595bn in FY21. This was a vital change and could produce a good impact even for FY23. Though FY21 also witnessed a growth rate of about 6pc, banks’ advances were much less than that of FY22.

Investments increase by 27pc to Rs17.419tr

Bankers said the partial reason for higher advances in FY22 was cost of doing business which had increased significantly for all sectors of the economy.

Inflation in June stood at 21.3pc, indicating the future trend and justifying higher borrowing by the private sector.

Banks’ advance to deposit ratio rose to 48pc in FY22, compared to 45pc a year ago. Bankers believed it was a good sign for the economy.

Banks’ investments in FY22 rose by Rs3.677tr to Rs17.419tr, an increase of 27pc. Banks invested about Rs13.742tn in FY21.

The bankers maintained that most of these investments were made in risk-free and high-yielding government bonds like treasury bills and Pakistan Investment Bonds.

The auction of T-bills on Wednesday showed that the benchmark rate was 15.84pc, which was too high to attract investments, while the banks were eager to park maximum liquidity in the papers.

The bids for T-bills amounted to Rs1500bn while the government raised Rs506bn, reflecting banks’ trend for investment.

Banks’ deposits in FY22 increased by 15pc to Rs22.81tr from Rs19.796tr last year, an all-time high. In terms of amount, the deposits increased by Rs3.014tr in a year.

The bankers saw several reasons for this increase, including record remittances, increasing interest rate which now stands at 15pc and tight restrictions on buying dollars from the open market.

The general public traditionally used to buy dollars for savings, but the government made it practically impossible to buy dollars from exchange companies. A lot of documents are required to buy dollars.

Published in Dawn, July 15th, 2022