The current upward trend in interest rates is making the government securities an attractive safe haven for investment coming from the risk-averse banks, the market analysts believe.
Moreover, they say, the cash-strapped government’s budgetary borrowing to bridge fiscal deficit would also facilitate the investments of the banking sector.
“The current rising trend in production of textile sector is emerging a potential support for the banking sector but subject to liquidity available in the banking sector,” said a report issued by the InvestCap Research Tuesday.
Citing latest SBP data, the report said total deposits of the banks posted a growth of 12.7 percent YoY and 3.0 percent MoM to Rs 7,529bn in CY13. However, the 5-Y CAGR depicted a better picture as the same grew by14.7 percent. “The growth in the same was mainly due to M2 growth which is surged by 15.91 percent during FY13 and up by 4.67 percent during FYTD,” it said.
Moreover, increased minimum savings rate (linkage with SBP discount rate) was another factor which attracts depositors. Similarly, advances of the banks also improved in the same direction; stepped up by a healthy 5.6 percent YoY, reaching to a level of Rs 4,071bn till Dec-13.
After a span of 4 years, investment growth turned down into single digit, registering a growth of 4.7 percent YoY and a minimal 0.9 percent MoM to Rs 4,070bn up to Dec-13. “The shifting of government borrowing from commercial banks towards SBP is expected to be the key reason behind the growth slowdown of banking sector investment,” said the research report.
Although Investment to Deposit ratio (IDR) of the banking sector touched the highest level of 60.4 percent during CY13, however, a gradual decline was observed and the same settled around at 54.05 percent by Dec-13 end. On yearly basis, it went down by 414bps due to net decline in government borrowing from banking sector, similarly on monthly basis, the IDR of banking sector reduced by 116bps reaching to 54.02 pc at the end of the year.