ISLAMABAD: The overall net investments of the banking sector surged by 1.8 percent during the third quarter (Q3) of calendar year 2017 against decline of 2.5 percent in the same period of last year.

Investment in government securities have remained the prime driver behind investments growth, officials data revealed.

Following the recent trend, banks have continued to invest in short-term Market Treasury Bills (MTBs) and have divested from Pakistan Investment Bonds (PIBs) and Sukuks (PKR 11.7 billion) during Q3CY17, according to Quarterly Performance Review of the Banking Sector issued by the State Bank of Pakistan.

Consequently, the share of MTBs (in total net investments) has increased to 52.6 percent in Q3CY17 compared to 42.0 percent in Q3CY16 while the share of PIBs in total investments has declined to 35.3 percent, the data revealed. The offer-to-target ratio (for PIBs auctions) has declined to 0.36 in Q3CY17 from 3.32 in Q3CY16, which reflects reduced banking sector interest in long-term government securities.

There is a change in government’s maturity preferences for budgetary borrowings. The target amount for PIBs auction of PKR 300 billion in Q3CY17 was significantly lower than the PIBs maturity of PKR 772.6 billion, representing abated interest of government in long-term borrowings.

According to the report, Higher investments in MTBs could also be seen as a market risk management strategy by banks, owing to expectations of a possible change in direction of interest rates in the future. Banks’ investment in corporate securities (TFCs, Bonds, debentures, fully paid up shares etc.) has decreased by 2.6 percent during Q3CY17.

Particularly, banks’ investment in corporate debt instruments has declined by 1.3 percent (PKR 3.2 billion) while investments in shares/listed equity has declined by 0.9 percent (PKR 2.4 billion), the report said adding this may be a manifestation of the ongoing volatility in the capital market.

Based on the above discussion, it can be inferred that the changing composition of banks’ earning assets (towards short-term investments and long-term loans) points towards repositioning by banks to remain profitable in the wake of evolving macroeconomic environment.

Meanwhile, the deposits of the banking sector have seen a marginal increase of 0.3 percent in Q3CY17 (13.7 percent on YoY basis).

Analysis reveals that customers’ deposits (94.9 percent share in deposits) have decreased by 1.3 percent (PKR 163.1 billion) during Q3CY17.

Within customers’ deposits, saving deposits have increased by 1.9 percent (PKR 88.9 billion) while current accounts – non remunerative deposits experienced a decrease of 8.0 percent (PKR 339.4 billion). The fixed deposits has expanded by PKR 59.9 billion (2.2 percent growth) during Q3CY17, according to the data.