Bank deposits grew 20pc in 2016

KARACHI: Deposits of the banking sector increased 20.4 per cent in 2016, which is notably higher than the growth rate witnessed in recent years.

In its latest statement of position of all scheduled banks, the State Bank of Pakistan (SBP) said deposits and other accounts of all scheduled banks on Dec 30 amounted to Rs11.2 trillion.

According to Topline Securities, 20.4pc growth in the deposits of the banking sector is significantly higher than the average growth of 12pc in the last three years.

The deposit base expa­nded 7pc in December on a month-on-month basis – a development that analysts attribute to the ‘year-end phenomenon’ that will likely be adjus­ted in coming weeks.

Sales teams of commercial banks make all-out efforts to generate deposits in December to achieve their annual targets. This usually results in puffed-up deposit figures in the end-of-year financial accounts.

The benchmark interest rate is at a record-low level, which means parking funds in government securities is not as lucrative for banks as it used to be in the recent past.

“Strong deposits growth bodes well for the banking sector as volumetric growth remains the key earnings driver in a low-interest rate scenario,” the brokerage said while noting the significance of deposit mobilisation at a time when interest rates are at the lowest level in decades.

Investments of the banking sector went up only 7.5pc to Rs7.2tr in 2016. In contrast, investments grew 32pc and 26pc in the preceding two calendar years.

Like deposits, gross adv­a­nces of the banking sector also grew at a faster-than-usual pace in 2016.

Loosely translated as outstanding loans, gross advances of scheduled banks grew 16.5pc to Rs5.5tr last year. Data compiled by Topline Securities shows the average annual growth rate of gross advances of the banking sector in the last three years was 7pc.

Rising loans are reflective of the banking sector’s newfound willingness to extend credit to businesses. Availability of credit helps businesses expand, which leads to job creation and economic growth.

“Improvements in advances growth also indicate increased credit demand, initiation of CPEC projects and improved macro indicators. Banks are also focusing on high-yielding consumer growth to support their margins and profitability,” Topline Securities said.

Published in Dawn, January 7th, 2017