KARACHI: Banks’ advances witnessed a sharp decline in the first month of current fiscal year amid sharp economic slowdown across the country.

Data published by the State Bank of Pakistan (SBP) showed scheduled banks’ total advances as of July clocked in at Rs7.991 trillion, down Rs105bn from Rs8.096tr in June.

The decline comes at a time when banks continue to pour huge sums in to the government papers narrowing the space for private sector borrowing. The private sector, on the other hand, has been retiring debts instead of borrowing funds to expand economic activity.

In another report, SBP data revealed the private sector’s net debt retirement rose to Rs86.6bn from July 1 to Sept 6.

However, the banks are comfortable with the ongoing situation, as after SBP stopped lending funds to the federal government, the government has become increasingly reliant on the banks for its financing needs.

The banks have also shown their willingness to park funds in the risk-free government securities as observed in the last two treasury auctions.

The central bank data further showed that government borrowed Rs455.8bn from banks from July to Sept 6. Last year, the government retired debts worth Rs1.2tr to the scheduled banks.

However, loans to private sector reached to Rs693.5bn in FY19; slightly lower than Rs775.5bn in FY18.

Since banks are eagerly investing in government papers, financial sector is likely to benefit whereas the private sector, the engine of economic growth, would suffer due to liquidity shortage and the high interest rate has already curtailed the private sector’s chance to borrow funds.

Published in Dawn, September 22nd, 2019