Bank deposits increased by 18% this year due to high interest rates, currency tightening

An employee counts Pakistani rupee notes at a bank in Peshawar, Pakistan on August 22, 2023.  - Reuters
An employee counts Pakistani rupee notes at a bank in Peshawar, Pakistan on August 22, 2023. – Reuters
  • Deposits increased to Rs 26.398 trillion in October.
  • Increase in remittances also boosts deposits.
  • Banks’ earnings will increase in the coming months: Analyst

KARACHI: Bank deposits rose to Rs 26.398 trillion in October, up 18% from a year earlier, as savers took advantage of the highest interest rates in Asia, State Bank of Pakistan (SBP) data showed. Have gathered for.

However, deposits in the banking industry rose slightly by 0.3% to Rs 26.318 trillion in September. news Information was given on Sunday.

Analysts attributed the increase in deposits to several factors, including higher interest rates that encouraged savers to keep their money in bank accounts, remittance growth from foreign workers and rapid branch expansion of some banks.

“The rise in deposits following the government’s crackdown on illegal currency trading and dollar smuggling in September is also due to people converting foreign currencies into rupees and keeping them in banks instead of at home,” an analyst said.

“The second reason is that rising interest rates encouraged savers to keep their money in bank accounts, as shown by the rising average rate of return on deposits.”

A surge in remittances from overseas Pakistanis also boosted deposits as they rose to $2.5 billion in October, up 12% from the previous month.

Moreover, rapid branch expansion of some banks contributed to the increase in deposits.

Analysts predict that a significant increase in deposits will boost banks’ earnings in the coming months, even if interest rates fall.

The government’s borrowing needs, currency devaluation and inflation forecasts will all 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 significant decline in yields on Pakistan’s investment bonds this week, driven by expectations that inflation will ease sooner than expected, suggests that the SBP may be able to reduce rates in its upcoming monetary policy review, Which is scheduled for next month.

Bank credit rose 8% year-on-year to Rs 11.898 trillion in October. Banks’ investment in October increased 27% year-on-year to Rs 23.232 trillion.

Banks’ investment-to-deposit ratio (IDR) rose to 88% in October from 81.6% a year ago. However, the advance-to-deposit ratio (ADR) of banks fell to 45.1% in October from 49.3% in the same month last year.

Analysts said because banks are making more money from government securities such as bonds and Treasury bills due to their more attractive yields, banks’ IDR ratios are rising.

Nonetheless, banks claim that due to the increasing borrowing needs of the government, they lend money through investments in treasury bills and bonds.

The SBP on Friday infused Rs 4.65 trillion into banks through 28 days of open market operations. This influx of liquidity comes at a return rate of 22.05%. SBP infused funds to protect the market from liquidity crunch.

According to monetary data from SBP, broad money (M2) growth decelerated from 14.2% at end-June 2023 to 12.9% at end-September, mainly due to continued slowdown in private sector credit and seasonal retirement in financing commodity operations. is more. The policy statement which was released last month.

Similarly, the growth of reserve funds has slowed since June, which is mainly explained by the significant slowdown in the growth of currency in circulation.

Since June, the SBP’s net foreign assets (NFA) and the banking system expanded mainly due to significant FX inflows in July, while net domestic assets (NDA) contracted, leading to changes in the composition of both M2 and reserve funds. There was improvement.

Originally published in news

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