Deposit Protection Fund Crosses Rs. 77 Billion

The Deposit Protection Fund (DPF), maintained with regular contributions from the member banks, has surpassed Rs. 77 billion (approximately $340 Million) as of October 2022, according to the annual report of the Deposit Protection Corporation (DPC).

As a deposit protector, Deposit Protection Fund (DPF) continued to build up its own financial forte, to handle any reimbursement scenario and employed efficiently the funds. It would continue to build its funds up to a credible level that can adequately ensure effective compensation to eligible depositors and fulfillment of potential role in the resolution of distressed banks, the report noted.

DPC commenced its operation in 2018 as a subsidiary of the State Bank of Pakistan (SBP). It has been mandated to compensate the bank depositors for their loss in the event of a bank failure, as provided in the Deposit Protection Corporation Act, 2016. All scheduled banks in Pakistan are member banks of its deposit protection scheme. DPC provides coverage of up to Rs. 500,000 per depositor-per bank for the domestic operations of member banks.

Eligible deposits of DPC Member banks continued to reflect the increasing trend in line with the rise in total deposits. The total deposits showed a YoY growth of 15.2 percent and stood around Rs. 22.8 trillion as on June 30, 2022, while the eligible deposits grew by 11.4 percent during the same period to reach Rs. 12.2 trillion as on June 30, 2022.

The deposit growth can be attributed to factors such as expansion in the branch network, higher home remittances, inflows from the Roshan Digital Account (RDA), and a higher rate of return. During FY2021-22, a sharp decline in COVID cases also led towards normalcy in business routines and supported the growth in deposits.

More importantly, in terms of numbers, the fully protected depositors as a part of eligible depositors for Conventional banks and Islamic banks, are 95.5 percent and 92.0 percent respectively. The remaining depositors are also covered up to Rs. 500,000, but their outstanding account balances are more than Rs. 500,000. Based on the total deposits of domestic operations of member banks, the coverage provided by DPC will fully protect around 94 percent of all depositors.

As the premium charged to banks by DPC is linked to their total eligible deposits, thus the increase in premium collected directly corresponds to growth in such deposits of the member banks. Further, as Conventional banking has a lion’s share in the overall size of the industry’s assets and liabilities etc, the deposits of Conventional banks and the contribution of premium therefrom are much larger than those of IBIs. However, as the pace of growth in Islamic Banking is higher than that of conventional banking, therefore, the premium collection from IBIs has recorded a higher corresponding increase than premium collection from conventional banks.

On a YoY basis, the growth in the premium collection from IBIs remained at 15.0 percent, 21.7 percent, and 28.4 percent during the last three years as compared to the growth in conventional banks premium that remained at 9.5 percent, 13.5 percent, and 12.6 percent for the same periods. The growth in premium depicts that the growth of deposits in Islamic Banking is greater than that of conventional banking.

The second annual report has been issued with the objectives to further enhance public awareness regarding explicit but limited protection of deposits in the banking sector, the role of DPC in financial stability and to provide disclosure of its financial position. The total number of depositors that falls under DPC’s protection scheme goes beyond 98 percent and out of these approximately 95 percent of the depositors are now fully protected.

The report highlights the Corporation’s milestones and provides statistics on important factors like total and eligible deposits, coverage ratio, premium received, and growth in deposits. A part of the report has been exclusively dedicated to public awareness and corporate communications, which reflects the Corporation’s endeavors towards public awareness.