Bank financing hits record high

KARACHI: Pakistan’s commercial banks have continued to freely lend to the cash-strapped government at elevated rates of return, taking their financing to a record high of 93% of total deposits in January 2024. According to data compiled and shared by Optimus Capital Management (OCM), banks’ credit to the private sector, however, remained stagnant at the eight-month low at 44% of deposits in January. Higher inflation and interest rates did not allow businesses to expand their production lines and also set up new factories. Bank deposits ticked down to Rs27.54 trillion in January compared to Rs27.84 trillion in December 2023, as “rich depositors apparently withdrew cash that they had deposited in December on the request of banks to allow financial institutions to maintain their books with good numbers,” Arif Habib Limited (AHL) economist Sana Tawfik said while talking to The Express Tribune. She said the government’s reliance on domestic debt was on the rise due to lesser foreign loan inflows for quite a long time. Data suggests that banks invested Rs25.60 trillion in government debt securities like T-bills, Pakistan Investment Bonds (PIBs) and Sukuk out of the total deposits of Rs27.54 trillion. This led to a rise in the investment-to-deposit ratio (IDR) to the all-time high of 93% in January.