Banks investment in govt securities rises to Rs6.33 trillion
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.