KARACHI: Banks have witnessed a sharp jump in advances in the beginning of the new calendar year, indicating a strong demand in the wake of high economic growth.

The JS Research reported on Friday that the gross advances of scheduled banks increased by 20 per cent year-on-year to reach Rs6.56 trillion at the end of January 2018.

The State Bank of Pakistan (SBP) recently revised its growth rate target from 6pc to 5.8pc. Both the domestic and international analysts in their reports predicted a growth rate within the range of 5.5-6pc.

Due to higher advances, the investment growth was lower than last year. The investments picked up by 4pc year-on-year but dropped by 11pc month-on-month.

The SBP data showed the deposits of banks have been growing faster, enabling them to earn more with the advances and investments in the government papers.

The deposits increased by 12pc year-on-year to Rs12tr resulting in an advance to deposit ratio of 55pc while the investment to deposit ratio slipped to 64pc.

The economic expansion has created vast opportunities for banks to play a key role in the growth of the banking sector as well as the economy. The commercial banks have been participating with a huge supply of liquidity for the agriculture growth. The SBP recently said the target of Rs1tr for agriculture sector would be achieved.

However, the banks were generally not happy with the low interest rate scenario that has reduced the margin of profits despite higher growth in advances.

The SBP last month increased the policy rate by 25 basis points to 6pc, making the interest rate relatively higher in the wake of low inflation. The low interest rate has helped the borrowers get cheaper money for their trade, manufacturing and services sector.

Bankers believe that the monetary expansion would be higher in the second half of FY18. So far the monetary expansion is much lower than the previous fiscal year with monetary growth of 1.26pc compared to 2.53pc noted during the corresponding period of the last fiscal year. Higher monetary growth is a sign of higher liquidity flow in the economy means higher economic activities.

Published in Dawn, February 10th, 2018