KARACHI: The State Bank of Pakistan (SBP) has said that the deposits of banks registered 9.55 percent growth in 2018, which is the lowest since year 2008.
The SBP in its Financial Stability Review (FSR) 2018 said that the steady growth in deposits is pivotal for the banks as it is the major source of funding.
Deposits constitute 77.99 percent of total liabilities and 72.42 percent of total assets, as of end CY18. The deposits have contributed 92.68 percent in the asset expansion during CY18.
“During CY18, deposits have risen by 9.55 percent (Yo-Y) versus 10.29 percent in CY17; the lowest since CY08,” the SBP said.
This slowdown may be attributed to a mix of factors including (a) cost cutting strategy of some banks to limit the growth of domestic remunerative deposits, (b) scaling back of operations by few banks in overseas market, (c) probable dampening effect of withholding tax on banking transactions, (d) depositors concern regarding enhanced KYC requirements to contain AML/CFT risks, and (e) additional liquidity available as a result of net-maturity of investment.
In terms of category, deceleration in saving and fixed deposits have overshadowed the rise in current deposits. The saving deposits have become costly due to Minimum Saving Rate (MSR) policy in vogue.
Moreover, the fixed deposits could not attract the attention of banks due to maturity re-profiling of their assets, both, in investments (from PIBs to MTBs) and advances (from fixed term loans to short-term working capital financing).
The size-wise distribution of deposits is also important from the stability perspective. Generally, retail (small) deposits are more stable and have longer retention periods than the large size institutional deposits.
Encouragingly, the reviewed year has witnessed growth in small sized retail deposits up to Rs1.0 million. On the other hand, growth in deposits over Rs10.0 million have been trending downwards.
This is due to declining flows of institutional deposits (NBFIs, PSEs etc.) as well as private business deposits, particularly, the manufacturing sector, the SBP said.