Karachi, December 15, 2023 – Banks in Pakistan have witnessed all-time high deposits of Rs 26.80 trillion by end of November 2023, according to official statistics.
The new high is marking a significant increase from the previous high of Rs 24.4 trillion recorded in October 2023, the State Bank of Pakistan (SBP) said.
The data reveals an astounding 18 percent growth in banking deposits for November 2023 compared to the same month the previous year when deposits stood at Rs 22.73 trillion. The driving force behind this surge can be primarily attributed to the record-high interest rates in the country.
In its announcement on December 12, 2023, the central bank decided to maintain the benchmark policy rate at an unprecedented 22% for the fourth consecutive time. This move has proven to be a magnet for both individuals and businesses, enticing them to deposit their capital with commercial banks to take advantage of the lucrative interest rates.
The allure of higher interest rates has created an environment where many businesses are choosing to be cautious about initiating new ventures. Instead, they are opting to secure their capital in bank deposits, which provide a safer and more stable option within the current economic climate. The impact of these high-interest rates on deposit growth is evident, as individuals and businesses prioritize capital preservation over riskier investment strategies.
The reluctance to engage in new ventures due to the cost of borrowing has led to a significant influx of funds into bank deposits. During the first five months (July – November) of fiscal year 2023-24, the private sector has retired an amount of Rs 45.79 billion compared to the new loans of Rs 86 billion during the same period of the previous year, showcasing the shift in preference towards depositing funds.
As bank deposits continue to soar, they not only signify a preference for capital preservation but also act as a key indicator of economic stability. In a nation where fiscal uncertainties have been a significant concern in recent years, the role of banking institutions as safe havens for savings has become increasingly crucial.
The unprecedented growth in bank deposits showcases the confidence of the public and businesses in the banking system, emphasizing its role as a pillar of stability in turbulent economic times. The ability of the banking sector to attract and retain substantial deposits is pivotal for sustaining economic growth and fostering a sense of financial security among the population.
While the high-interest rates have played a significant role in this surge, economists are closely monitoring the situation to assess its long-term implications on the economy. The sustainability of such deposit growth and its impact on lending activities will be key areas of focus for financial analysts in the coming months.
