Banks’ investments in the government papers crossed Rs. 13 trillion over the past two years, as shown in the latest data issued by the State Bank of Pakistan (SBP).
During the fiscal year 2020 and 2021, the banking sector’s investment in public debt instruments grew by 86.2 percent, showing banks’ increasing dependence on the government for risk-free profits, Dawn News reported on Tuesday.
Banks’ investments in government securities had clocked in at Rs. 6.994 trillion in FY19 and soared to nearly twice as much at Rs. 13.023 trillion in FY21. This had led the banking sector to post profits even during the pandemic and halt in economic activity.
The increase has also come as a result of the discontinuation of the SBP as an option of financing for the government.
However, another obvious consequence of this shift was the reduction in private sector credit, which also ultimately hampered economic growth as the private sector businesses were unable to obtain the necessary financing for expansion and growth.
This increase in the banks’ investments in the government debt was 32 percent in the previous fiscal year alone. The total investment by the banks had stood at Rs. 9.885 trillion by the end of FY20, which had increased to Rs. 13.023 trillion by the end of FY21. This shows that the banks had invested Rs. 3.138 trillion in public debt instruments within one year.
On the other hand, the banks’ credit to the private sector showed minimal growth of 10.5 percent in FY21 whereby the net lending had increased from Rs. 6,180.2 billion at the end of FY20 to Rs. 6,827.5 billion at the end of FY21.
While the lower private sector credit can also be attributed to the restrictive effects of the pandemic on the economy, the banks also said that they were not prepared to take risks particularly as the repeated waves of COVID-19 continue to add uncertainty to the perpetuation of economic activity.