Banks making profits through investing in government papers
All the tall claims by the government that the Pakistani economy is growing rapidly. And industrial growth picking up pace as large scale manufacturing shown better results,which is contradicted by the fact that private borrowing from the banks is not growing with the same pace. Even though the loans from the banks from the private sector has improved compare to the last year. One has to accept the fact that economy has improved, and there is more economic stability at the moment. But growth is not enough to touch the lives of millions of working people.
There are weaknesses and shortcomings in the economy which has not been addressed by this government. One weakness is the continued trend of the banks to invest heavily in the government bonds and papers. The other one is the continuation of heavy borrowing from the private banks.
According to the State Bank Quarterly Compendium for March 2016, all banks operating in Pakistan, including foreign banks, have made their more than 90% investments in government papers. Banks are making profits in business with the government and least interested in investing money in the private sector. The State Bank reduced the interest rates to encourage the private sector to borrow more from banks on cheaper rates, but so far this move failed to bring desired results.
Low Interest Rates
The government hoped that low interest rate would boost economic activities, but results show that credit off- take by the private sector during the current fiscal year was poor and disappointing.
The government has taken advantage of the cheaper loans and borrowed heavily from the private banks. The private banks also took advantage of the government needs and invested in government papers as secure investments. The government has been able to contain its liability of repayment on bonds and security papers because of low interest rate.
The big five (five largest banks in pakistan, HBL, UBL, ALB, MCB and NBP) having 51.2% assets of the entire banking industry, have 90% of their investment in government papers. Foreign banks operating in the country has made 100% investment in government papers, and specialised banks made 84% investment these papers. Medium size banks from 6 to 10 position have more than 94% and small banks have 93% investment in government papers.
The Big-5 banks share in profits of the banking industry was 59.6% while medium banks share was 17.6%. However, banks in fourth order (21to 28) could hardly get 1.2% share in the profits of the industry. The foreign banks performed well as their share in deposits was just 1.2% but they earned 3.1% share in profits.
According to Economic Survey of Pakistan, the economy posted 4.7% GDP growth for the current fiscal year, But independent economists doubt these figures and believe the actual growth rate was lower. According to them, the figures were inflated to bring down the debt to GDP ratio close to 60% required to convince the IMF. According to State bank, private sector borrowed Rs 249 billion in the current fiscal year which higher than the borrowing of the last year of Rs 146 billion but lower to the expectations. Some big investors and businessmen also taking advantage of the low interest rate and borrowing the money to invest in real estate or stock market.
The Real Problem
The real problem with the economy is that it is still an elitist economy and it function to benefit the ruling class. The wealth is concentrating into fewer and fewer hands. The poor masses have been left out by the economic managers in the planning. 80% population has no access to the banking. Only rich and middle class has access to the bank loans. Banks are not interested to give small loans to the people on easy installments. Most of the branches in the rural areas were closed when big 4 were privatised.
The private banks are not interested to run branches in losses. They are not operating to provide services to people but to make profits. That is why big number of rural people been left out by the banking sector. Their whole intention is make maximum profits.