KARACHI:
Deposits at banks rose to Rs11.2 trillion in December 2016, the highest level
in three years, which augured well for the financial sector, a brokerage
reported on Friday.
Bank
deposits came in at Rs9.3 trillion in December 2015. Deposits are increasing
gradually after experiencing withdrawal following the increase in withholding
tax on cash transactions last year. Moreover, a slowdown in real estate
activity is also resisting deposits outflows.
Deposits
climbed to Rs11 trillion during the third quarter (July-September) of 2016.
Deposits fell in the last couple of years due to monetary easing and consequent
fall in minimum savings rate and imposition of withholding tax on banking
transactions.
“A
20 percent year-on-year growth in deposits is significantly higher than
historical average growth of 12 percent during the last three years,” Umair
Naseer, an analyst at Topline Securities Limited, said. “Strong deposit growth
bodes well for the banks as volumetric deposits growth remain the key earning
driver in low interest rate environment.”
Analysts
are unanimous that banks must increase their efforts for deposit mobilisation,
which are the major source of their funding.
Deposits
also increased seven percent on month-on-month basis in the same month of the
last calendar year. “The abnormal month-on-month jump in deposits can be due to
the yearend phenomenon and this will adjust in the upcoming weeks,” Naseer
said.
Some
analysts see bank deposits to grow at 13-15 percent this year. A higher
inflow of deposits was also attributed to private sector and public sector
deposits at banks.
The
government placed more money—as a part of their increased borrowing from the
State Bank—with domestic banks.
The
advances to the private sector rose 17 percent to Rs5.6 trillion in December
last year from Rs4.8 trillion in the corresponding month of the previous year.
Investments
were up eight percent to Rs7.2 trillion.
Improvement
in bank loans showed pick up in credit demand from businesses amid broad
consensus about the country’s cheery economic prospects.
The
increased pace of work on infrastructure and CPEC-related projects would boost
the appetite for bank lending in 2017.
The
SBP key policy rate stands at 5.75 percent, which is at a 42-year low. Soft
interest rate fuelled surge in advances from banks during the last year.
Banking
deposits stood at Rs10.6 trillion and advances amounted to Rs5.3 trillion as of
December 23, 2016.
Improvement
in advance also indicated increased credit demand, initiation of CPEC
(China-Pakistan Economic Corridor) projects and improved macroeconomic
indicators.
Banks
are also focusing on high-yielding consumer (product) growth to support their
margins and profitability.
The
SBP, in its report, said the private sector credit is expected to take a boost
from improving demand conditions as implied by growth in manufacturing sector,
better energy supplies, especially to the manufacturing sector, growing
momentum of CPEC-related activities, and, the lagged impact of easy monetary
policy.
“Moreover,
the government reliance for budgetary borrowing away from the banking sector
(to the central bank) may also induce banks to go for alternative investment
avenues of private sector lending,” it said.
The
report said the spread between lending and deposit rate is shrinking in the
wake of easy monetary conditions. “This coupled with falling yield on treasury
investments were already taking a toll on the sector’s profitability,” it added.
“However,
it is expected that the decelerating profitability may further push banks
towards their core - and higher yielding - business of lending.”
It
said the banking sector remains sound and resilient on an overall basis.
“However, the expected growth in the private sector credit will increase the
quantum of risk weighted assets,” it added.
“At
the same time, the slowdown in profitability may hamper the banks’ ability to
plough back profits and support capital base. This might put downward pressure
on the capital adequacy ratio.”
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