Pakistan’s banking industry’s deposits reached an all-time high at Rs. 14.63 trillion by the end of 2019.
High-interest rates helped commercial banks offer attractive saving rates to the customers on saving accounts or saving certificates. Some of the commercial banks promoted the Term Deposit Certificate of various periods, which provides profits on a monthly basis. Resultingly, a large number of customers turned to banks for secure profits on their savings.
So far, commercial banks have offered up to a 13 percent profit on saving on a monthly or quarterly basis which is slightly less than the profit rate offered by Mutual Funds and National Saving Certificates.
The banking industry’s deposit reserves surged to Rs. 14.4 trillion earlier in June 2019 however it failed to maintain its value due to the outflow of deposits by customers due to various reasons. One of the biggest reasons was the Federal Board of Revenue (FBR), which is now monitoring customers’ bank accounts.
A majority of customers with savings less than the value of Rs. 0.5 million regained their confidence in the banking system with no fear of tax authority on their money as far as they are fulfilling their requirements.
In the last month of 2019, banks with their aggressive drive mobilized a whopping Rs. 320 billion in order to meet their yearly deposit targets set by their management.
In 2019, the overall deposits of banking industry grew by 9.5 percent compared with the deposits of Rs. 13.3 trillion by the end of 2018, showing an increase of Rs. 1.27 trillion in a year.
This handsome increase in deposits also generates taxes for the revenue collection authority in terms of FED on profit and Capital Gain Tax.
Banks Investment and Advances
The advances of the banking industry grew by 3.4 percent or Rs. 269 billion due to high-interest rates which discouraged businesses to get loans for expanding their operations. The advance values of the industry increased from Rs. 7.8 trillion to Rs. 8.15 trillion from 2018 to 2019, which is also at an all-time high.
Consumer financing also recorded a dip from banks mainly due to the interest rates. The decline in borrowing from banks signifies a slowdown of the economic activities in the country, which may be revived through incentivized loans by the government and a decrease in policy rates.
The lower lending of banks hurt their interest income in 2019 however investment in the government papers gave them a healthy revenue stream throughout the year.
According to SBP, the investment of banks increased by Rs. 1.21 trillion in 2019 to stand at Rs. 8.8 trillion. The investments of the banks are mainly concentrated in government papers, Sukuks, TFCs, etc.
The commercial banks’ own appetite for investing in government papers remained strong in 2019. Their expectations of interest rates had peaked out, which led them to lock available liquidity in longer tenor government securities. This change in the market’s expectations was also visible in the bidding pattern in primary auctions, which clearly reflected the banks’ preference for longer tenor securities.