The deposits in the banking industry have surged to a new height, reaching a level of Rs. 23 trillion by the end of February 2023.
This is mainly due to the higher deposit or profit rates offered by banks through saving accounts and other saving products.
According to statistics updated by the State Bank of Pakistan (SBP), the deposits attracted by the banks from individual customers, associations of persons, and corporate customers have reached Rs. 22.9 trillion by the end of February. This represents a 15 percent increase compared to the previous year, and a mere 1 percent increase compared to the previous month.
Advances, Deposits and Investment of Scheduled Banks: Feb’23
Advances: PKR 11.7trn, +18% YoY
Deposits: PKR 22.9trn, +15% YoY
Investments: PKR 19.0trn, +31% YoY
— Arif Habib Limited (@ArifHabibLtd) March 13, 2023
The recent increase in the policy rate by the central bank to 20% has increased the minimum deposit rate for the banking sector, mainly for conventional banks, to 18.5 percent by default. The profit rate offered by Islamic banks on selected products is lower than 18.5 percent, unfortunately. However, these banks continue to attract deposits.
The deposits-to-advance ratio (ADR) of the banking sector stood at 51.1 percent.
Amid an economic slowdown, financial institutions have utilised a significant portion of deposits in lending to the government, leading to sluggish growth in credit to the private sector.
The government is borrowing funds primarily to finance non-development projects and meet its budgeted expenditures, including paying interest and financing monthly salaries and pensions.
On the other hand, the advances of the banking industry also increased to Rs. 11.7 trillion by end of February, which is 18% higher than last year and merely 1 percent higher than the previous month.
Investment in the banking sector stands whopping 31 percent year-on-year growth to reach Rs. 18.9 trillion by end of the same month. It decreased by 2 percent from the last month, surprisingly.
The Investment-to-deposit (IDR) stands at 82.9 percent by end of February 2023.
The prevailing tight monetary policy is likely to curb the flow of advances by banks, whereas the deposits and investments of the banks are likely to increase in the coming months.