KARACHI: Banks’ investments in the government papers have almost doubled in two years crossing Rs13 trillion at the end of FY21 reflecting the growing dependence of the banking sector on the risk-free public debt instruments for making huge profits.

The heavy investments by scheduled banks in government papers have drastically reduced the credit flows towards the private sector which lost the chance for utilising the potential for economic growth.

Experts believe the national economy has been performing below its growth potential. In FY21 the GDP expanded at the rate of 3.94 per cent, but the banks’ huge investment in government papers indicate the private sector was ignored.

The latest data issued by the State Bank showed that the banks’ investment in government securities were Rs6.994 trillion in FY19 which jumped to Rs13.023tr in FY21.

The investments of banks increased by 86.2pc in government securities within two years as it invested Rs6.029tr during this short span of time. Almost all banks earned profits during this period despite severe Covid pressure on the economy.

The investments in government securities compared to last fiscal FY20 increased by 32pc. The total investment till end of FY20 was Rs9.885tr which rose to Rs13.023tr in FY21 showing an investment of Rs3.138tr in just one year.

The previous two fiscal years witnessed very high amount of investments in the government papers. Bankers view it as result of no funding to government by the State Bank of Pakistan (SBP). The IMF has stopped the central bank for over two years from lending to the government. The government relies on banks to meet its fiscal gap by selling treasury bills and onvestment bonds.

Compared to FY20; the credit to private sector increased by just 10.5pc in FY21. The total credit to private sector at the end of FY21 was Rs6,827.5bn compared to Rs6,180.2bn in the previous fiscal, showing a growth of Rs647.3bn.

However, compared to FY21, the credit growth to private sector was 12.2pc reflecting the impact of Covid-19 in the previous fiscal year which drastically reduced the credit growth for the private sector in FY20.

Bankers said the banks were not ready to take risks particularly in an uncertain scenario as once again the surging Covid cases have forced the government to restrict economic activities. The restrictions on business and commercial activities though on large scale will hurt the overall national consumption.

Published in Dawn, July 27th, 2021