Liquidity position remains stable

KARACHI: The liquidity position of the banking system remained stable with a decent growth of 11 per cent on yearly basis during the first half of 2010, according to an analyst.

However, lending did not pick up much and advances posted a single digit growth despite downward stabilisation of the interest rates during the first six months of the year, said Elixir Securities analyst Hifza Zia.

Funds primarily remained concentrated in investments, the analyst said in the company’s research report.

Going forward private sector’s financing is expected to improve further given gradual uptick in the large-scale manufacturing growth.

Nevertheless, re-emergence of government’s borrowing for budgetary needs and possible fresh accretion in non-performing loans could hamper private sector credit growth as well as advances growth of the sector, Zia said.

Lending posted single digit growth

Deposits of the banking sector witnessed a healthy growth of 11 per cent to Rs4.6 trillion during the period under review, indicating ample liquidity in the system.

Gross advances of scheduled banks, on the other hand, increased marginally by four per cent compared with last year mainly because of the low rise in private sector credit.

Lending operations of the banking system are continuously showing a declining trend owing largely to the economic slowdown affecting both supply and demand of credit.

Moreover, the government’s increasing dependence on commercial banks for credit after the International Monetary Fund (IMF) programme has also resulted in a crowding out effect. Hence, banks’ funds have mainly concentrated towards investments, reflected in the 34 per cent jump in investments.

Published in The Express Tribune, July 8^th, 2010.