KARACHI: The banks made record investments of Rs7.6 trillion during the year, mostly in risk-free and lucrative government papers, while advances during the same period declined instead of increasing.

The latest data issued by the State Bank of Pakistan (SBP) on Monday shows that the total investment of scheduled banks till April 2024 reached Rs27.281tr, compared to Rs19.694tr in April 2023.

The jump of Rs7.6tr in investment was a record high and had never been witnessed before, marking a 38.5 per cent increase. It also shows that banks have been investing at an average of Rs632 billion per month.

During January to April 2024, bank investments increased by Rs2tr, reflecting both banking trends and the government’s increasing need for banks’ money.

Deposits rise 21.3pc, contrasting with 0.7pc fall in advances in July-April

The banking trend is visible in advances. SBP data shows that advances during the same 12 months declined instead of increasing.

The total advances of banks were Rs12.028tr in April 2024 compared to Rs12.110tr in April 2023, reflecting a decline of Rs82bn.

This trend continued during the first four months from January to April FY24, with advances falling by Rs66bn to Rs12.028tr in April from Rs12.094tr in January 2024.

The entire year from April to April 2023-24 remained under the strong grip of political and economic uncertainties, which forced banks to adopt a cautious approach.

However, banks found an easy way to earn money by investing most of their funds into government papers, yielding record high profits at a rate of return of about 21-22pc. Almost all banks earned record profits in calendar year 2023.

At the same time, the government has been paying penalties for costly borrowing and paid around Rs5.5tr as markup during the first ten months of the current fiscal year FY24.

The data further shows that banking sector deposits increased by 21.3pc year-on-year (YoY) in April 2024.

“Banking deposits increased by 21pc YoY to Rs28.4tr as of April 2024 from Rs23.4tr in April 2023, while advances decreased by 0.7pc to Rs12tr during the same period from Rs12.1tr in April 2023,” said Tahir Abbas, head of research at Arif Habib Limited.

“The advance to deposit ratio (ADR) stood at 42.3pc in April 2024, a decline of 936 basis points YoY. The investment to deposit ratio (IDR) clocked in at 96pc in April 2024,” added Mr Abbas.

The poor advance to deposit ratio and sharp increase in the investment to deposit ratio reflect the banking trend in the country. Other SBP data shows that banks were not lending to the private sector, with lending almost zero during the current fiscal year. The private sector is unable to bear the cost of borrowing at the rate of 22pc per cent, with businesses borrowing only for short-term working capital.

Published in Dawn, May 21st, 2024

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