Bank credit to private sector stands low

Commercial banks in Pakistan have failed to attract new deposits from accountholders, but have continued to increase safe lending at exorbitant returns to the cash-strapped government compared to lower credit offers to private sector for economic activities. Deposits improved 0.2% to Rs22.15 trillion in August 2022 compared to Rs22.10 trillion in the prior month. Deposits, however, were significantly lower compared to the record high of Rs22.81 trillion recorded in June 2022, according to the central bank and brokerage houses’ data. Banks, however, managed to increase risk-free lending to the government (through investment in sovereign debt securities) by 3.3% to a new peak of Rs18.18 trillion in August compared to Rs17.60 trillion in July. Consequently, the banks’ investment-to-deposit ratio (IDR) hit a high of 82.1% in August compared to 79.7% in the previous month. “Banks have managed to increase lending to the government through borrowing from the central bank (as the growth in deposits remains slow),” Arif Habib Limited economist Sana Tawfik said while talking to The Express Tribune. She elaborated that the central bank had continued to inject money into commercial banks through the open market operations (OMOs). Commercial banks acquire financing from the central bank at a comparatively lower interest rate and lend the same to the government at a higher rate. The practice has supported the banks in increasing their IDR.