KARACHI, Nov 12: Advances of banks have fallen sharply by 120 per cent during last 10 months, reflecting the significantly slow flow of liquidity towards industry and businesses.
Bankers said these advances were extremely low in the last five years and that could be resulted into a negative situation for the output of the economy.
Since January to October 2007, commercial banks made advances to the tune of Rs110.5 billion which was 120 per cent less than the advances they made during the same period last year.
The total advances of the commercial banks last year were Rs243.7 billion.
The flow of liquidity to private sector was also obvious from the low advance by banks. During July-Oct, 2007, the private sector borrowing fell by 47 per cent to Rs38.232 billion compared to Rs72.093 billion borrowed during the same period last year.Some bankers said low advances could be in favour of State Bank’s tight monetary policy which puts pressure on banks to reduce flow of liquidity. The lower liquidity strategy of the State Bank was to target inflation caused by excess supply of liquidity into the market during the last fiscal year.
However, despite tight monetary policy, inflation remained much higher than the targeted level of 6.5 per cent. The new monetary policy announced in July, 2007, was the continuation of the previous tight monetary policy which witnessed about 19 per cent monetary growth.
Bankers said the lower advances would also hit income of banks this year. They also said lower income of banks would not allow them to improve the banking spread and offer better returns to their deposits.
Banking spread is still 7.3 per cent which means that banks keep almost double than what they return to their depositors.
“The November and December are the boom period for advances and we believe the situation would improve relatively,” said a banker.
At the same time, he said the last 10 months of the current calendar year (also the banking year) have already proved poor performance of banks.
The banking industry witnessed four years of golden period and earned record profits, but neither it improved return to their depositors, nor did the State Bank force them to share profits with depositors.
“This slow down in advances would certainly hit the economic growth and the result will appear at the end of this fiscal 2007-08,” said Abid Saleem, an analyst.
The State Bank reported that during July-October the reserve money has been substantially cut down. The figures provided by the SBP showed that during the four months July-October, 2007, the reserve money, the biggest factor for high inflation, remained at 3.78 per cent. This was in contrast to 14.31 per cent during the same period last year.
The tight monetary policy also curtailed monetary growth (M2) during the same period as SBP’s figures showed that the M2 growth was just 1.7 per cent compared to 2.16 per cent.
