ADR rises to 49.7%

KARACHI: The banking sector’s advance-to-deposit ratio (ADR) continues to improve, reaching 49.7 per cent as of December 6, up from 47.8 per cent in the previous month.

Banks’ advances increased to Rs15.1 trillion as of December 6, up from Rs14.9 trillion in November, data from the State Bank of Pakistan (SBP) showed.

Deposits fell to Rs30.3 trillion, compared with Rs31.1 trillion a month earlier. Investments remained flat at Rs29 trillion. The investment-to-deposit ratio increased to 95.7 per cent from 93.2 per cent in November.

“The ratio [ADR] had previously bottomed out at 38.4 per cent in August. Since then, the ADR has increased by 11.4pps [percentage points] to reach its current level of 49.7 per cent,” said Arif Habib Limited.

Over the period from August to December 6, deposits have decreased by 1.6 per cent, while advances have increased by 27.6 per cent, it added.

“Banks are lending aggressively to meet the threshold limit of 50 per cent ADR to avoid incremental tax on government securities,” said Awais Ashraf, director research at AKD Securities.

“Nearly half of the increment lending of Rs2.7 trillion since June 2024 is being extended to NBFIs [non-bank financial institutions] to preserve advances’ portfolio quality while achieving ADR limit of 50 per cent,” he added.

Currently, banks are required to achieve a 50 per cent gross ADR target by the end of the year to avoid incurring additional taxes on income from government securities. If banks maintain an ADR between 40 and 50 per cent, they will face an additional tax of 10 per cent. If the ADR falls below 40 per cent, they will be subject to a higher additional tax of 16 per cent on their income from government securities.