Banking sector deposits increase 19pc to Rs30.6tr in July

KARACHI: Deposits at banks increased by 19.1 per cent year-on-year to Rs30.6 trillion as of July 2024, according to the latest data from the State Bank of Pakistan.

However, the deposits fell by 1.7 per cent month-on-month in July. The banking sector’s deposits were Rs30.12 trillion in the previous month.The trend of rising banking deposits persisted even after the SBP began monetary easing. Last month, the SBP reduced its key interest rate by 100 basis points (bps) to 19.5 per cent, marking the second consecutive rate cut. As a result of these two cuts, the overall rate has been reduced by 250bps since the last meeting in June.

Previously, people were receiving attractive returns on their bank deposits since interest rates were higher.The increase in remittances helped boost deposit inflows. In July, remittances from Pakistani citizens employed abroad increased by 48 per cent to $3 billion.

Advances of the banking sector stood at Rs11.9 trillion in July, down 4.5 per cent from a year ago. Advances dropped by 0.2 per cent on a month-on-month basis.Banks’ investments increased significantly to Rs30.4 trillion in July, a 41.8 per cent year-on-year increase. On a month-on-month basis, investments rose by 0.9 per cent.

Due to the tight monetary policy that was in place for almost four years, banks have been under intense criticism for their massive lending to the government at higher interest rates, while loans from consumers and businesses have remained modest.

To cover its expenditure needs, the government largely relies on borrowing from the banking industry. The primary drivers of the government’s borrowing from commercial banks are a larger budget deficit, scheduled repayment to the SBP, higher cost of debt servicing and limited external financing.

The advance-to-deposit ratio fell to 38.8 per cent in July from 40 per cent a year earlier.The investment-to-deposit ratio clocked in at 99.4 per cent in July. That compared with 97 per cent in the same month last year.