The State Bank of Pakistan (SBP) has reported a significant withdrawal of Rs222 billion from the banking system during October 2020. According to SBP statistics, banking deposits fell to Rs16,664 billion by the end of October 2020, down from a record high of Rs16,886 billion at the close of September 2020.
Post-Lockdown Economic Activity Driving Banking Withdrawals
Banking experts attribute the decrease in deposits to the resurgence of economic activity in the post-lockdown period. With the easing of COVID-19 restrictions, businesses and individuals have required more cash to meet their financial needs as operations and commercial activities picked up speed.
“The gradual lifting of lockdown restrictions led to increased financial requirements for both businesses and individuals. As a result, banking withdrawals spiked to facilitate economic recovery,” said one banking expert.
Potential Future Impact on Banking Deposits
While the banking deposits remained at a substantial level in October, experts warned of potential further declines in the near future. One of the main concerns is the transfer of government entity funds to the Single Treasury Account (TSA). This shift, part of a government initiative, could lead to a deterioration of deposit levels in the banking system in the coming months.
However, the outlook isn’t entirely negative. Analysts predict that deposits could increase once again as banks close their financial year on December 31, 2020. Moreover, the amnesty scheme under the Naya Pakistan Housing Scheme could see a large influx of funds from builders and developers being deposited into the banking system, potentially boosting overall deposits.
COVID-19 Resurgence Impact on Deposits
With concerns about a resurgence of COVID-19 in the country, experts believe that investment opportunities could become more limited, which may encourage people to keep their money in the banking system for safety.
“The threat of another wave of the pandemic could reduce risk-taking in investments, pushing depositors to hold on to their cash in banks for security,” stated another analyst.
Year-on-Year Growth in Deposits
Despite the withdrawal seen in October, the overall deposit base still shows a strong year-on-year growth. The banking system deposits of Rs16,664 billion at the end of October 2020 reflect a 19.8% increase when compared to Rs13,912 billion during the same month in the previous year.
