Govt’s borrowing shifts from SBP to commercial banks

The federal government has increased the budgetary borrowings from the scheduled banks in the current fiscal year 2015-16 to improve its credentials before the International Monetary Fund (IMF).

The federal government has retired an amount of Rs 370 billion borrowed from the State Bank of Pakistan (SBP) during the current fiscal year, the SBP data revealed on Tuesday. Meanwhile the government borrowed Rs 1.152 trillion from commercial banks for its budgetary support.

The scheduled banks’ holding of government securities stood at Rs 6,310 billion on May 31 (Pakistan Investment Bonds, Rs 3,579 billion; Sukuk Rs 337 billion and T‐Bills Rs 2,394 billion).

Despite the declining discount rates by the SBP, which is almost at 15 year low, the interest of the country’s financial institutions still lies in government papers.

The analyst of a brokerage house said the rates of National Saving Securities (NSS) are the lowest in Pakistan’s history while the retirement of borrowing from the SBP helped the government to achieve the target under the IMF programme.

Latest banking sector data for May 2016 indicates that the banks’ balance sheet continues to grow at strong levels (+19 per cent YoY) to Rs 12.1 trillion. While private sector credit growth has not been substantial on account of bank’s continued preference for risk-free GoP securities (banks’ credit to government grew by 29.1 per cent YoY in May 2016), it still posted growth of 8.2 per cent YoY in May 2016.

However, consumer financing grew by 9.3 per cent YoY in May 2016 (7.7 per cent of the private sector loans) as banks look to re-focus on high margin auto finance and personal loans in the current lower inflationary environment, the analyst added.

The analyst said the sequential uptick in spreads is more on account of an 8 basis points increase in lending yields to 8.5 per cent against a nominal 5 basis points dip in deposit costs to 3.28 per cent.

The analyst at AKD securities said June 2016 spreads will continue to improve on account of immediate re-pricing of deposits (vs. quarterly adjustment of advances) in light of the 25 basis points cut in May 2016, the trend going forward remains sluggish until a possible reversal in the interest rate cycle.

The analyst forecast the consumer price index (CPI) growth at 2.75 per cent in June 2016 owing to stability in food and oil prices in the international and local markets.