Banks' share in government securities comes to 94 percent in overall investments

Banks' investment in government securities constitute over 94 percent share in overall investments made during the second quarter off this calendar year (Q2CY17) Bankers said that although there are a number of investments opportunities, the banks' and financial institutions' investment in government securities are more secured as compared to any other instruments.
According to the State Bank of Pakistan's (SBP) Quarterly Performance Review of the Banking Sector, the overall investments of banking sector have moved up by 5.6 percent or Rs 449.2 billion in April-June of CY17 compared to a growth of 5.4 percent or Rs 337.7 billion in April-June CY16. The report pointed out that the recent growth in investments is primarily on the back of investment in government papers including Pakistan Investment Bonds (PIBs), Market Treasury Bills (MTBs) and Sukuk.
Out of total investment, the banks have invested 94.67 percent or an amount of Rs 425.1 billion in government papers in Q2CY17, which is 26 percent or Rs 87 billion higher than Q2CY16. Banks have invested major amount Rs 282.4 billion in MTBs, while some Rs 131.4 billion were invested in PIBs and Rs 11.4 billion in Sukuk. Resultantly, the share of MTBs in investment in the government securities has expanded to 49.2 percent in April-June of CY17 as compared to 48.2 percent in Jan-March of CY17 and 37.0 percent in April-June of CY16.
The report revealed that banks' higher investment flow in short-term MTBs is in contrast to last year when more investments were made in PIBs. Besides change in the government's institutional choice and maturity preferences for its borrowings, this is also a reflection of varying preferences of banks as they have showed mild interest in PIBs as offer-to-target ratio of 1.36 in second quarter of this year as compared to 2.51 in same period of last year, it said.
The SBP report said that lower interest in PIBs and higher investment in MTBs reflect that banks are expecting the general price level in the economy and hence the interest rates to rise in the future. Similarly, banks' investment in other avenues (TFCs, Bonds, debentures etc.) has also increased by 3.1 percent during Q2CY17. However, banks' investment in shares/listed equity has declined by 3.6 percent (standing at Rs 9.5 billion) due to recent volatility and downfall in equity market of Pakistan.