KARACHI: Banks parked Rs121 billion in treasury bills on Wednesday with Rs115bn or 95 per cent of this investment made in the three-month papers reflecting rising uncertainty attached with the departure of the political government and holding of general elections.

Bankers said the recent decision of the State Bank making it binding on all banks to pay minimum 6 per cent return on average balance on monthly basis compelled them to keep investing in risk-free government papers.

Banks said the decision would cost much more than the losses incurred as non-performing loans during the last five years on average.

“Due to six per cent return on average balance, the banks’ cost may rise by one per cent approximately,” said Mohammad Sohail, CEO of Topline Securities.

“This means a loss of Rs25bn a year to banks and gain to savers or depositors,” said Sohail.

A senior banker said the calculation was correct and the banks would come under pressure which means the banks would avoid making advances which carry risks while investing in government papers would continue to be the first priority.

Local banks remained profitable since the government emerged as the sole client providing risk-free returns despite global financial crisis began in 2007 that inflicted the banking of the entire world.

However, in the same period while banks were making profits the depositors were getting negative returns drawing attention of the central bank forcing banks to improve this situation.

“It is the government which needs the banks’ help as it has been out of cash or facing wide fiscal gap during the last five years,” said the banker.

He said the government changed the banking role in this country.

“Now the banks are short of liquidity and the State Bank has to pump over half a trillion rupees to make the banks able for investing into the government papers,” said the banker.

Banks have been facing serious criticism from the economists and analysts for not being supportive to the economy since the business community finds it hard to get cheaper money.

According to State Bank’s reports the private sector gets loan from banks only for working capital which is short-term and less risky as banks are not extending long-term loans for expansion.