Bank deposits surge 22% to reach 14-year high of Rs19.80 trillion

KARACHI: Bank deposits have surged 22 per cent to reach the 14-year high of Rs19.80 trillion by the end June 2021, compared with Rs16.23 trillion during the preceding period last year, according to a report released by the Topline Securities, on Tuesday.

The deposits growth has been fuelled by higher remittances (+27 per cent YoY to $29.4 billion and +30 per cent YoY in the rupee terms), while the business activity (cash-based) too was hindered due to the Covid-19, resulting in an increase in the banking deposits.

Investments of banks also grew 29 per cent YoY to Rs13.7 trillion ($86 billion) as of June 2021. The excess liquidity is being placed in investments by the banks due to muted growth in advances.

The advances grew 10 per cent YoY as of June 2021 to reach Rs9 trillion ($56 billion), as the banks remained wary of the overall economic conditions due to the Covid-19. However, the growth of 5 per cent quarter-on-quarter (QoQ) in the banks’ lending, is an indication for improving outlook.

The Investments to Deposit Ratio (IDR) increased from 66 per cent in June 2020 to 69 per cent in June 2021, but is down from 70 per cent in March 2021. Advances-to-Deposit Ratio (ADR) declined from 51 per cent in June 2020 and 48 per cent in March 2021 to 45 per cent in June 2021.

The analysts at the Topline Securities expect the Advances-to-Deposit Ratio to improve, going forward, as the government has imposed tax on banks, which fail to meet minimum threshold of 50 per cent ADR and as the economic activity picks up.

The total provisions against advances stood at Rs629 billion ($3.9 billion) and remained unchanged on YoY and QoQ basis, despite overall concerns of sharp spike in the non-performing loans (NPLs) due to the Covid-19-linked deterioration in the financial health of corporates.

The currency in circulation (CIC) increased 14 per cent YoY during the same period. The currency in circulation as a per cent of the monetary aggregate clocked in at 29 per cent, above the last five years average of 27 per cent, likely due to low interest rates and an effort to stay out of sight of the tax authorities.

The analysts expressed the hope of an average deposit growth of 15 per cent over 2021/23, compared with the last 10 year’s average growth of 13 per cent.