Conventional banks lending to the private sector has increased by 400 per cent over five months of the current fiscal.
According to the latest report of the State Bank of Pakistan, Islamic banks are far behind in lending during last year. However, there is a considerable increase in lending this year as it rose up 8 times in comparison with five months of the previous fiscal year.
Conventional banks lending was significantly higher at PKR 268.5 billion this year in comparison with PKR 65 billion in last fiscal year.
Islamic Banks lend out PKR 6.2 billion in the first 5 months of the previous fiscal year. This figure increased up to PKR 48.5 billion which is 8 times more in the same period this year.
Conventional banks lending was more despite higher interest during the current fiscal year.
In the last monetary policy, the Central bank increased policy interest rate by 1.5% to 10%.
Lending is therefore risky for the banks due to high interest rate. However, the trend shows that conventional banks and borrowers were ready to take the risks.
It is believed that conventional banks would not be able to take more risks, this is because of higher interest rate they fear more non-performing loans. The second half of the current fiscal would make the situation clearer.
Higher conventional banks lending and Islamic Banks lending were due to low availability of government papers.
The government has been borrowing from the State Bank of Pakistan and off-loading its debt to commercial banks.
Conventional banks are offered short-term treasury bills but the yield is quite low than the long-term bonds including the Pakistan Investment Bonds.
Currently, the government has indicated to borrow around PKR 200 billion through Islamic Banks.
The chances of investment is quiet low for Islamic banks and their liquidity remains unused.
Due to this higher liquidity the Islamic banks have aggressively started lending during the current fiscal year.