Banking Industry Deposits and Profit Rate Up All-Time High

The profit rate of the bank industry continued to attract customers who invested handsomely to get lucrative and risk-free returns from their respective banks, as a result, the industry reported an all-time high profit of Rs. 24.38 trillion by the end of May 2023.

According to the data updated by the State Bank of Pakistan (SBP), the deposits of the banking industry increased to Rs. 24.38 billion by the end of May 2023 from Rs. 21.15 trillion reported by the end of the same month, last calendar year, showing an increase of Rs. 3.2 trillion or 15.3 percent year-on-year.

Banks offered a minimum deposit rate of 19.5 percent to their customers excluding tax and duties following the high policy rate jacked up by the banking regulator. This increase in deposit rate or profit rate tempted customers to invest in saving accounts, term deposit certificates of various periods, and mutual funds.

Many commercial banks offer minimum deposit/ profit rates to their depositors, on the other hand, a few of the banks mainly microfinance banks offered profit rates of up to 22 percent on their savings products.

Similarly, the high-profit rates offered by the Government on securities also attracted banks to invest in its bonds and papers, which ultimately pushed up the investment of the banking sector to an all-time high level of Rs. 20.1 trillion.

According to the SBP, the banking industry investment surged up to Rs. 20.15 trillion by the end of May 2023 as compared to Rs. 15.55 trillion reported by the end of the same period in the last calendar year, showing an increase of Rs. 4.5 trillion or 29 percent year-on-year.

The cash-strapped government has been borrowing heavily from commercial banks through its securities of various holding periods at an average profit rate of 21 percent.

The advances of the banking sector, on the other hand, recorded a lesser growth than these two above indicators reflecting the increasing trends of saving of banks customers and investments of commercial banks.

The advances of the commercial banks also surged to an all-time high level at Rs. 12.07 trillion by the end of May 2023 as compared to Rs. 10.8 trillion reported by the end of May 2022, showing an increase of Rs. 1.48 trillion or 14 percent year-on-year.

Meanwhile, the interest rates on advances are higher than the policy rate of Rs. 21 percent.

In a nutshell, customers invested Rs. 3.2 trillion in banks during the period of July to May; banks invested Rs. 4.5 trillion in government securities during the same period, and banks lent or invested Rs. 1.48 trillion through borrowers in the same period. Unfortunately, the utility of saving in the banking sector is being used less in boosting economic activities in the country.

While the banking sector is minting money from segments, the government imposed a heavy super tax on its earnings.