Bank deposits in Pakistan showed the highest growth in four years, jumping 17 percent to Rs. 17.1 trillion in 2020, stated brokerage house Topline Securities in a report.
This is up from Rs. 14.632 trillion in 2019, posting a growth better than the 10-year average of 13 percent. This is being attributed to higher inflows of remittances from overseas, coupled with lower business activity amid Covid-19 lockdown.
The report said, “Growth in deposits has been fueled by higher remittances (17.5 percent year-on-year in USD and 27.5pc YoY in PKR terms during 11 months of 2020), while lack of business activity due to COVID-19 (cash-based) may have also resulted in an increase in bank deposits.”
M2 growth clocked in at 16 percent in 2020, primarily driven by the stellar deposit growth this year, while a 19 percent increase in Currency in Circulation (CIC) was recorded. CIC increased to Rs. 6.30 trillion by December 2020. The increase in CIC was attributed to tax evasion, among other reasons, by the report.
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“We expect deposit growth in the range of 12-14 percent during 2021, while we expect advances to grow by around 4-6 percent, where banks are expected to remain risk-averse given concerns over further waves of COVID-19,” the report said.
Advances, on the other hand, grew only by 2 percent in 2020. This falls in line with higher deposits and the causing factors, as banks remained wary of overall economic conditions due to COVID-19. In the last quarter of 2020, some improvement was seen for advances with 3.4 percent quarter-on-quarter growth.
The report said, “The aggressive cuts in interest rates by Pakistan’s central bank since March 2020 may be starting to reap fruits as the impact of COVID-19 pandemic also lowers and economic activity picks up.”
