Banks in Pakistan made historic investments totaling Rs7.6 trillion during the year, primarily in low-risk and profitable government securities, while advances saw a decrease instead of an increase.
Recent data from the State Bank of Pakistan (SBP) indicates that scheduled banks’ total investments reached Rs27.281 trillion by April 2024, compared to Rs19.694 trillion in April 2023.
This surge of Rs7.6 trillion in investments marks a significant 38.5% increase, with banks averaging investments of Rs632 billion per month.
Despite this surge in investments, advances during the same period saw a decline. SBP data reveals that total advances stood at Rs12.028 trillion in April 2024, compared to Rs12.110 trillion in April 2023, reflecting a decrease of Rs82 billion.
This trend persisted from January to April 2024, with advances falling by Rs66 billion to Rs12.028 trillion.
The banking sector’s cautious approach can be attributed to political and economic uncertainties prevailing throughout the fiscal year 2023-24.
However, banks capitalized on investing in government securities, yielding record profits with returns of about 21-22%. Meanwhile, the government incurred substantial costs, paying approximately Rs5.5 trillion in markup during the first ten months of FY24.
On the deposit front, the banking sector witnessed a significant 21.3% year-on-year increase in April 2024, reaching Rs28.4 trillion compared to Rs23.4 trillion in April 2023.
However, the advance to deposit ratio (ADR) declined by 936 basis points year-on-year to 42.3% in April 2024, while the investment to deposit ratio (IDR) stood at 96%.
The poor ADR and sharp rise in IDR indicate a trend of banks favoring investments over lending to the private sector.
SBP data suggests minimal lending to the private sector during the current fiscal year, with businesses primarily borrowing for short-term working capital due to the high borrowing costs of around 22%.