KARACHI: Deposits of the banking sector have continued their upward trajectory and increased to Rs20.97 trillion – all time historic high.
Deposits of the banking sector clocking in at Rs20.97 trillion as at December 2021, registering a 17 per cent year on year (YoY) jump while rising by a 7 per cent month on month (MoM).
Analysts at Arif Habib Limited said that with SBP rising CRR by 1 per cent in November 2021 along with 275 basis points increase in policy rate, it was expected that banks would focus on improving their low cost deposit portfolio.
Pakistan Banking advances in 2021 clocked in at Rs10 trillion, up 19 per cent YoY which was the highest growth in 3-years. This was driven by macro recovery, strong uptick in consumer loans, and initiation of new financing schemes by central bank (SBP).
Disbursement under TERF (Temporary Economic Relief), housing finance, and auto finance have all led to up tick in advances.
As per SBP, a total of Rs435 billion or 4 per cent of total advances have been approved under the Temporary Economic Relief (TERF) from April 2020 to March 2021 under which disbursements are still undergoing. SBP expects TERF disbursements at Rs273 billion in FY22 vs. Rs163 billion in FY21.
In July, 2020, SBP also mandated banks to increase their housing and construction finance portfolio to at least 5 per cent of their private sector advances by December 2021 otherwise they will be subject to penalties. This coupled with increased disbursements under Mera Pakistan Mera Ghar scheme also boosted overall construction and housing finance.
Consequently, total housing finance (including finance to bank employees) has increased to Rs286 billion (3.9 per cent of private sector credit) in Nov 2021 vs. Rs216 billion (3.3 per cent of private sector credit).
Auto financing surged by 34 per cent to Rs385 billion in 11M2021 driven by strong auto sales and single digit interest rates.
In 2H2021, government also imposed increased tax of 2.5-5 per cent on banks falling below 50 per cent ADR (advance to deposit ratio) threshold forcing them to increased lending.
ADR ratio of banks in 2021 clocked in at 48.4 per cent vs. 47.5 per cent in 2020, which is still lower than last 10-year average ADR of 53 per cent and peak of 83 per cent in 2008. We expect advances growth to remain in range of 10-15 per cent in 2022 to be driven by TERF disbursement, housing financing etc.
Pakistan banking sector deposits were up 17 per cent YoY to Rs20.9trn in 2021 which was higher than the last 10-year average deposit growth rate of 13 per cent. Strong M2 (broad money) growth and higher remittances has have led to increased deposit growth.
Currency in circulation as a percentage of broad money stood at 29 per cent in 2021 vs. 28 per cent in 2020 and last 5-year average of 27 per cent which could be due to low single digit interest rates and an effort to stay out of sight of tax authorities.
Investments on other hand increased by 22 per cent YoY in 2021 vs. a growth of 31 per cent in 2020 as banks continue to prefer investment in risk free government securities.
As a result, Investment to Deposit (IDR) ratio of the sector improved to 67 per cent in 2021 vs. 65 per cent in 2020.