Advance to deposit ratio falls
KARACHI: Violating global norms, the ratio of investment to advances in the banking sector of Pakistan tilted in favour of investment.
It means that banks that are supposed to circulate capital through advances in the economy are more focused on money
making investments in the country.
The State Bank reported in its Statistical Bulletin for November 2011 that scheduled banks have been making huge investments undermining the role of advances in the banking.
According the SBP, the ratio of banks’ advances to deposits has been falling for the last two quarters of the current calendar year.
The trend shows a clear deviation from earlier banking practices in the country. The advances to deposits ratio fell to 56.10 per cent in September from 61.79 per cent in March this year.
The other important monetary indicator, investments to deposits ratio is more astonishing as it has been increasing fast from previous years.
The State Bank reported that investments to deposits ratio increased to 51.01 per cent from 43.64 per cent in March.
This indicator shows that banks have rapidly been investing in government papers, leaving their real character to make
maximum advances for improvement in economic performance.
It’s no surprise that banks in Pakistan did not receive global impact of the financial crisis which swept away global banks, sinking trillions of dollars across the world.
Now banks have further shielded their interest by limiting their functions by investing in government papers.
The ratios of advances and investments to deposits showed over-all advances and investments position.
According to another report, credit off-take by the private sector during the current fiscal is still negative that shows the private sector even after five months, remained a net retiree of debts.
Researchers and analysts have been criticising this situation asking the State Bank to play its due role for better distribution of
money among different segments of economy.
The State Bank in its monetary policy on Nov 30 warned that massive government borrowing had put the SBP in a dilemma and that the government should reduce its dependence on borrowings from commercial banks.
The borrowing from State Bank is in limit but the government created another path of borrowing by injecting huge liquidity in
the commercial banks through open market.
Bankers said the State Bank has created a liquidity of Rs360 billion in commercial operations and then ask them to invest in government papers.
Banks by injecting liquidity through OMOs are getting profits through this injected liquidity investment. Banker said they used to get injected liquidity at the rate of 11.4 per cent and invest at 11.85 per cent.