KARACHI: Banks investment in government papers during 2014 reached an all-time high while the credit penetration remained the lowest in region.

Massive investment in government papers has not only crowded out private sector, but created a liquidity gap in the banking system.

The SBP on Friday injected Rs689 billion for 10 days into the banking system to improve liquidity.

Analysts said that falling inflation and the government’s lesser borrowings are likely to improve liquidity situation. They expect a cut in the interest rate which would force banks to extend loans to the private sector instead of parking money in government papers amid falling yields.

They also believe that over 50 per cent plunge in the oil price has also created a great opportunity for private investors to benefit from the low inflation environment, which stood at 4.3pc in December 2014.

“Investment to Deposit Ratio (IDR) of banks increased to 61.2pc in 2014 as compared to 54.1pc in the preceding year. Investment in government securities touched new peak as such a high IDR level has never been achieved previously,” said a research report of Topline Securities.