Banking sector deposits increase 19pc YoY to Rs31.3tr in September

KARACHI: Deposits at banks increased to Rs31.342 trillion as of September 2024, up 19.1 per cent from a year earlier, the central bank data showed on Wednesday.

However, the deposits decreased by 1.8 per cent month-on-month.High interest rates, along with the central bank’s efforts to promote financial inclusion and digitalisation of payments, contributed to the banking deposits’ higher year-on-year growth in September.

Interest rates were higher, so people were getting attractive returns on their bank deposits. Nonetheless, a reduction in interest rates is the reason for the monthly drop in deposit inflows.The State Bank of Pakistan cut the policy rate by 350 basis points in July and September 2024, taking the cumulative reduction to 450 bps since June 2024 due to a persistent decline in inflation.

According to the SBP’s Governor’s Annual Report for the fiscal year 2023–2024, the currency-in-circulation to deposit ratio fell as a result of rising bank deposits.“Owing to the government’s increased reliance on domestic banks to finance the budget deficit amid a shortfall in external financing, banks invested these deposits in government securities as demand for private sector credit remained low in FY24,” it said.

The advances of the banking sector stood at Rs12.305 trillion at the end of September 2024, up 3.8 per cent from a year ago. The advances increased by 4.2 per cent on a month-on-month basis.

Banks’ investments increased to Rs30.699 trillion in September, a 35.7 per cent year-on-year increase. However, on a month-on-month basis, investments dropped by 1.1 per cent.Private-sector credit demand started to increase in the last fiscal year, ending June 30, 2024, after being low during the fiscal year 2023. The rise in credit to the private sector can be explained by a modest uptick in economic activity as well as ongoing cost pressures in certain industries. This led to the need for working capital loans from the companies.

Private-sector credit grew by 4.0 per cent in FY24, compared with 2.3 per cent in FY23. Additionally, commercial banks showed a strong inclination towards risk-free investments in government securities, drawn by the government’s substantial increase in borrowing demand combined with rising interest rates.

The advance-to-deposit ratio (ADR) fell to 39.3 per cent in September from 45.1 per cent in the same period last year.From the start of this fiscal year, the government’s borrowing needs have started decreasing due to having ample funds on hand to meet its spending requirements amid unusually high dividend income from the central bank and improved foreign financial inflows. As a result, the banks are facing a problem of having excessive liquidity.

According to the government, if banks fail to reach the 50 per cent ADR mark by the end of December 2024, they will face an additional 10 per cent tax if the ADR is between 40-50 per cent, and a 16 per cent additional tax if the ADR falls below 40 percent.The investment-to-deposit ratio was 97.9 per cent in September, compared with 86 per cent in the same period last year.