The State Bank in its third quarterly report criticised the government’s heavy borrowing from the banking system seeing little room for private sector

KARACHI: While the government has been borrowing extensively from the banking system, the commercial banks look more eager to invest in government securities, the State Bank reported on Thursday.

The SBP data revealed that the banks’ investment in government papers jumped by a staggering 144 per cent to Rs325 billion during the first 11 months of the outgoing fiscal year as against Rs133 billion invested in the entire 2008-09.

The State Bank in its third quarterly report criticised the government’s heavy borrowing from the banking system seeing little room for private sector credit growth.

In 2008-09 the banks invested less in the government securities but the growth in private sector credit was just Rs9 billion. The extremely low credit growth reflected from the poor economic growth of 1.2 per cent in 2008-09.

In the July-May of 2009-10 the growth in private sector credit reached to Rs98 billion.

The government’s desire to borrow more and more from the banking system matched with the banks’ willingness to find easy and risk-free way for their earnings.

The five big banks NBP, MCB Bank, HBL, UBL and ABL have tightened their grip over the banking system as they have ample liquidity and deposits due to large network of branches.

The year ended December 31, 2009 witnessed record profits for the big five banks who grabbed over 90 per cent of total profits of the entire banking industry.

A foreign banker said since the melting down of financial system which began from United States in mid 2007 did not harm the five big banks due to many reasons but one of them was their absolute domination in banking industry.

Most banks other the big five were in trouble and had been striving for their survival. At least 13 banks failed to meet the State Bank’s criterion for paid-up capital and were given temporary extension to meet the capital limit or disappear from the banking horizon through sell-off or merger.

Bankers had been critical of the State Bank’s policy of supporting large banks with argument that large banks don’t fail which proved wrong during the global financial crisis.

According to the State Bank report the stock of the government borrowing from scheduled banks rose to Rs1154 billion till May 2010 from Rs857 billion on June 30, 2009.

The Public Sector Enterprises (PSEs) also raised their borrowing stock to Rs415 billion till May 2010 adding Rs78 billion during the first 11 months of the outgoing fiscal year.