KARACHI, March 22: Banks investment in government papers doubled between July 2007 and February 2008, reflecting a lower credit growth towards the economy.

A report by a brokerage house, Invest Cap, said deposits, advances and investment by banks have increased significantly. Invest Cap reported that deposits increased by 19 per cent, advances by nine per cent and investment by 31 per cent during the last eight months (July-February 2007-08).

The eight-month results also showed that advance-to-deposit ratio (ADR) and investment-to-deposit ratio (IDR) have started depicting a divergent trend.

The report said the ADR reached 71 per cent, showing the impact of tight monetary policy of the State Bank.

However, banks found alternative to invest heavily in the government papers, especially treasury bills of three different tenures.

The investment increased by 31.3 per cent during the first eight months of the current fiscal which is more than double than the last year’s 15 per cent growth during the same period.

The high investment of over 31 per cent shows that that banks prefer to invest in government-backed papers which earns them better yield while investments are risk-free.

Further, the SBP policy to discourage heavy credit flows towards the economy is also being followed by the banks.

This kind of credit flow helps the SBP curtail monetary growth, but it barred the money to enter the economy to generate activities for growth.

Predictions by analysts and economists about lower than the targeted economic growth of seven per cent is already in the air. If this trend persists and banks keep investing in the treasury bills, the economic growth might see a decline this year.

Meanwhile, the State Bank once again pumped liquidity into banking system on Saturday to save it from crunch.

The SBP had injected a huge liquidity of Rs33.5 billion last Wednesday which reflected the prevailing crisis of liquidity in the money market.

According to the figures, the SBP bought back Rs750 million for seven days and Rs9 billion for 14 days at the rate of 9.85 per cent and 9.80 per cent, respectively.

Money dealers said that shortage of liquidity kept the money rates very high throughout the week.

They said the rate might remain high in the coming days.

Analysts said banks have engaged their liquidity mostly for one year treasury bills causing dryness in the market.