However, deposits in banking industry increased slightly by 0.3% from Rs26.318 trillion in September
Sunday, November 12, 2023
Deposits increased to Rs 26.398 trillion in October.
The increase in remittances also increases deposits.
Bank profits will rise in the coming months: analysts.
KARACHI: Bank deposits rose to Rs26.398 trillion in October, up 18% from a year earlier, as savers flocked to take advantage of Asia's highest interest rates, State Bank of Pakistan (SBP) data showed.
However, deposits in the banking sector rose marginally by 0.3% from Rs 26.318 trillion in September, The News reported on Sunday.
Analysts attributed the rise in deposits to several factors, including higher interest rates that encouraged savers to keep their money in bank accounts, an increase in remittances from foreign workers and the rapid expansion of some bank branches.
"The rise in deposits is also due to the conversion of foreign currencies into rupees and holding them in banks rather than at home following the government's September crackdown on illegal currency trading and dollar smuggling," the analyst said.
"Another reason is that the rise in interest rates has encouraged savers to keep their money in bank accounts, as evidenced by rising average rates of return on deposits."
Deposits were also boosted by a surge in remittances from overseas Pakistanis, rising to $2.5 billion in October, up 12% from the previous month.
In addition, the rapid expansion of branches of some banks contributed to the increase in deposits.
Analysts expect remarkable deposit growth to fuel bank profits in the coming months, even as interest rates fall.
The government's need to borrow, currency devaluation and inflation forecasts will continue to influence interest rates. The market had previously predicted that interest rates would remain at 22% until the first quarter of 2024.
However, a sharp decline in Pakistan's investment bond yields this week, prompted by hopes that inflation will fall earlier than expected, suggests that the SBP may be able to cut rates in its upcoming monetary policy review, scheduled for next month.
Bank advances rose 8% year-on-year to Rs 11.898 trillion in October. Bank investment rose 27% year-on-year to Rs 23.232 trillion in October.
Banks' investment-to-deposit ratio (IDR) rose to 88% in October from 81.6% a year ago. However, banks' advances-to-deposit ratio (ADR) fell to 45.1% in October from 49.3% in the same month last year.
Analysts said that as banks earn more money from government securities such as bonds and treasury bills due to their more attractive yields, banks' IDR ratios are rising.
However, banks say they are lending money through investments in T-bills and bonds because of the government's growing needs.
The SBP on Friday injected a whopping Rs 4.65 trillion into banks through an open market operation over a period of 28 days. This infusion of liquidity comes with a return of 22.05%. SBP has injected funds to save the market from liquidity crunch.
Broad money (M2) growth slowed to 12.9% at the end of September from 14.2% at the end of June 2023, mainly due to a continued slowdown in credit to the private sector and a more than seasonal retirement in financing commodity operations, according to the monetary SBP. policy statement that was released last month.
Similarly, the growth of reserve money has slowed since June, which can be explained primarily by a significant slowdown in the growth of circulation.
Since June, net foreign assets (NFA) of the SBP and the banking system have widened mainly due to significant FX inflows in July, while net domestic assets (NDAs) have declined, leading to an improvement in the composition of both M2 and reserve money.
