Karachi, February 26, 2024 – The State Bank of Pakistan (SBP) reported a significant surge in bank deposits, reaching a staggering Rs 27.54 trillion by the end of January 2024, marking a substantial 21% year-on-year growth.
This substantial increase follows the trend of the banking sector’s robust performance in the country.
Official data indicates that the current deposit figure represents a notable rise from Rs 22.75 trillion at the end of January 2023. Despite a 1.1% month-on-month decline in January, with deposits standing at Rs 27.841 trillion by the end of December 2023, the overall trend showcases a robust expansion of the banking sector.
Several factors contribute to the growth in deposits, including the higher return rates offered by banks due to a tight monetary policy, the expansion of banks’ branch networks, and an increase in remittance inflows from the Pakistani diaspora.
The SBP’s decision to raise its benchmark interest rate by 15 percentage points to a record 22% since September 2021 has played a crucial role in attracting deposits. The rate has remained at 22% since June 2023, making it the highest among major emerging markets. This tight monetary policy has contributed to the banks’ ability to offer more attractive returns on deposits.
The declining currency-to-deposit ratio is another noteworthy trend, driven by the robust growth in bank deposits and a simultaneous decrease in currency in circulation. Remittances from overseas workers also played a pivotal role, witnessing a remarkable 26.2% year-on-year increase to $2.4 billion in January.
Bank investments have seen substantial growth, rising from Rs 19.293 trillion in January of the previous year to Rs 25.603 trillion in January 2024, marking a notable 32.7% increase. This trend continued with a 1.3% month-on-month increase.
However, the scenario is different for bank advances, which grew at a slower pace of 3.7% to reach Rs 12.095 trillion. There was a 2.1% monthly decline in advances, attributed to businesses and consumers displaying hesitancy in taking out new loans amid economic uncertainties and higher interest rates.
Public-sector borrowing has limited the private sector’s access to bank funding, as banks find themselves in a situation where they are unable to fully utilize their substantial liquidity. Banks attribute the drop in lending to borrowers’ reluctance, influenced by economic challenges and elevated interest rates.
The investment-to-deposit ratio for banks surged to 93% in January from 85% in the same month the previous year, while the advance-to-deposit ratio decreased to 44% from 51% year-on-year. The International Monetary Fund’s recent country report highlighted an increase in banks’ sovereign exposure, reaching 55.3% at the end of September 2023, with a corresponding decline in private sector credit.
As the banking sector continues to navigate challenges and opportunities, the SBP’s commitment to a robust monetary policy sets the stage for ongoing growth and stability in Pakistan’s financial landscape.
