Banks’ investment in govt papers rise to Rs7.54 trillion in 2015/16

KARACHI: The total investment of banking sector in the risk-free government papers rose 30 percent to Rs7.54 trillion in the year ended June 30, earning them attractive yields.

The State Bank of Pakistan (SBP) on Thursday said the investment of banks amounted to Rs5.81 trillion by the end of the last year.

Majority of the investment was in Pakistan Investment Bonds and market treasury bills (MTBs). 

On Wednesday, total Rs1.3trn of PIBs, accounting for 27 percent of the outstanding bonds, were matured.

“This had major implications on banks as they benefited from increased government borrowings,” analyst Umair Naseer at Topline Securities said. 

The government requires financing to fund its fiscal deficit, which crossed the target of 4.3 percent of GDP set for the last fiscal year.

Analysts said PIBs are still attractive for banks as the investment avenue for the long-term given that the SBP may maintain the status quo or cut its key rate in the monetary policy announcement due in the third week of later this month. 

They said now the growing profitability on investment depends on the government’s decision on Rs11 trillion of its maturing securities. 

“If the government lets the remaining amount matured it will have a negative impact on the bank’s balance sheets,” Naseer said. “If it borrows from PIBs, it could have a slightly positive impact on banks.” 

However, the government is likely to choose MTBs instead. The SBP’s debt calendar for the first quarter of the current fiscal year showed that it would borrow Rs1.45 trillion from Tbills against the maturity of Rs1.6 trillion. 

The SBP data said the PIBs and MTBs payable constituted around Rs7.3 trillion as on May 31.

The investment to deposit ratio increased to 70 percent from 63 percent a year ago.

The SBP said deposits of banking system rose 10 percent to Rs10.06 trillion by end of June this year over the last year.

The June deposits also grew 3.24 percent over Rs9.744 trillion recorded in May.

The analysts said the deposit growth showed confidence of depositors despite the continuation of the federal government policy to implement higher tax rate for non-filers.

The banks faced ease in deposits during the past months due to imposition of higher rate of withholding tax on non-filers of income tax returns while making banking transactions in both cash and non-cash.

The stock of bank advances also increased to Rs5.11 trillion by June 30 this year as compared with Rs4.576 trillion in the same month of last year, up 11.73 percent.

On monthly basis, it registered 1.4 percent growth from Rs5.043 trillion in May 2016.  

The analysts attributed increase in bank advances to ease in interest rates ensuring the availability of cheaper loan.