Banking sector deposits surged by 17 percent on a yearly basis, increasing from Rs. 16.8 trillion in the previous year to Rs. 19.7 trillion in Nov 2021, according to State Bank of Pakistan (SBP) data. The drastic rise has been driven primarily by a higher inflow of remittances.
According to data, remittances increased by 9.7 percent during July-Nov of the current fiscal year. The rise in remittances led to a great number of foreign currencies being converted into the Pakistani Rupee that was stored in bank accounts.
The investments of banks on risk-free government securities increased by 22 percent yearly, reaching Rs. 13.6 trillion in November 2021. The banks have opted to invest more in market treasury bills and Pakistan Investment Bonds (PIBs) due to higher returns offered by the government on these papers.
The bank’s advances also showed significant growth of 18 percent and were recorded at Rs. 9.6 trillion in November compared to Rs. 8.2 trillion a year earlier. Due to an increase in the cost of borrowing, the bank loans to the private sector remained low.
The advance to deposit ratio was recorded at 49 percent in November, a rise of 56 basis points. The investment to deposit ratio increased by 319bps year-on-year to 69 percent.
Last month, the central bank decided to raise the cash reserves requirement for the banks to 6 percent from 5 percent last month. Analysts expect an upward trend in the deposit inflows after the move by the central bank. The SBP is hopeful that the banks will offer better returns to their depositors. The central bank has also advised the banks to pass on the benefits of the recent interest rate hike to the depositors by offering higher returns to them on savings.
Nevertheless, the currency to deposit ratio (CIC) remains at a high level as the public continues to prefer holding cash and out of bank settlements. The rise in CIC has been credited to the high demand for cash after the Covid-19 pandemic as well as the distribution of cash through the Ehsaas program.
According to SBP, the demand for cash is relatively high in Pakistan compared to other countries in the region. The central bank has taken several initiatives to tackle the problem by encouraging the use of digital banking channels, however, no positive results have been seen so far.
