Banks in­vest­ment in govt se­cu­ri­ties rises to Rs6.33 tril­lion

The Pak Banker - - FRONT PAGE -

Banks' share in over­all in­vest­ments in the govern­ment se­cu­ri­ties has risen to 91 per cent sug­gest­ing high de­pen­dence of the eco­nomic man­agers on bank bor­row­ings for run­ning govern­ment affairs. The State Bank of Pak­istan in its se­cond quar­terly re­port of this fis­cal year stated that banks' in­vest­ments in govern­ment debt se­cu­ri­ties stood at Rs6.33 tril­lion out of the to­tal Rs6.96tr as of Dec 31, 2015.

The re­port said that the over­all in­vest­ment growth in the govern­ment pa­pers mod­er­ated to 3pc in Oc­to­ber-De­cem­ber quar­ter as com­pared to the av­er­age growth of 8.6pc dur­ing the first three quar­ters of cal­en­dar 2015. Banks in­vested more in Pak­istan In­vest­ment Bonds (PIBs) and Ijara sukuks as com­pared to net di­vest­ment in Mar­ket Trea­sury Bills (MTBs), the re­port said.

The trend con­tin­ued in the new cal­en­dar year as the in­vestors of­fered Rs266bn and the govern­ment raised Rs152bn against the tar­get of Rs50bn in the lat­est PIBs auc­tion on Wed­nes­day. Three- and five-year PIBs have been at­tract­ing max­i­mum in­vest­ments at 6.3pc and 7pc, re­spec­tively, slightly higher than the pol­icy in­ter­est rate of 6pc. Dur­ing the quar­ter, mostly three- and five-year bonds were picked up by the banks, of which, around 71pc have been placed in 'avail­able for sale' cat­e­gory, the re­port said. "This shift in banks' pref­er­ence for long-term govern­ment bonds ap­pears to be mo­ti­vated by their per­cep­tion of lower fu­ture in­ter­est rate en­vi­ron­ment (due to fall­ing in­fla­tion)," the re­port added. Banks' in­vest­ment in PIBs in­creased from 51.2pc in July-Septem­ber to 52.6pc in Oc­to­ber-De­cem­ber 2015. In con­trast, share in MTBs re­duced from 42.4pc to 40.2pc dur­ing the same pe­riod. The Is­lamic banks have also cho­sen the same path by ask­ing the govern­ment to is­sue max­i­mum Is­lamic bonds. The stock of Ijara sukuk stood at Rs210.3bn as of Jan 31, 2016. From the sup­ply side, the govern­ment's choice to raise longert­erm debt may be driven by ma­tu­rity pref­er­ence (to avoid roll-over risk) and ben­e­fit­ing from low cost funds (at pre­vail­ing low in­ter­est rates), the re­port said.

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