Bank deposits surge to Rs26tr in October, marking 18pc YoY growth

Bank deposits in Pakistan reached Rs26.398 trillion in October, reflecting an 18 percent increase from the same period last year, according to data released by the State Bank of Pakistan (SBP). 

Although the month-on-month growth was modest at 0.3 percent, with deposits rising from Rs26.318 trillion in September, analysts attribute the overall increase to a combination of factors.

The surge in deposits is primarily linked to the country’s highest interest rates in Asia, prompting savers to capitalize on the favorable conditions. Other contributing factors include the growth in remittances from overseas workers, the expansion of bank branches, and the conversion of foreign currencies into rupees following the government’s crackdown on illegal currency trade and dollar smuggling in September.

Analysts note that the rise in interest rates has incentivized savers to maintain their funds in bank accounts, evident from the increasing average rate of return on deposits. The significant growth in remittances, reaching $2.5 billion in October (a 12 percent increase from the previous month), and the rapid expansion of certain banks’ branches have also played a role in boosting deposits.

The factors influencing interest rates include the government’s borrowing needs, currency devaluation, and inflation forecasts. 

While the market previously anticipated a 22 percent interest rate until the first quarter of 2024, recent declines in yields on Pakistan’s Investment Bonds suggest the possibility of a rate reduction in the upcoming SBP monetary policy review scheduled for next month.

In October, bank advances increased by 8 percent YoY to Rs11.898 trillion, while banks’ investments rose by 27 percent YoY to Rs23.232 trillion. The investment-to-deposit ratio (IDR) increased to 88 percent, compared to 81.6 percent a year ago, reflecting banks’ increasing reliance on government securities such as bonds and treasury bills. However, the advance-to-deposit ratio (ADR) fell to 45.1 percent in October from 49.3 percent in the same month last year.

Banks assert that the rise in their IDR ratio is due to the more attractive yields offered by government securities. They emphasize their role in supporting the government’s increasing borrowing needs by investing in treasury bills and bonds.

In a bid to address liquidity concerns in the market, the SBP injected a substantial Rs4.65 trillion into banks through a 28-day open market operation on Friday, with a return rate of 22.05 percent. This liquidity infusion aims to prevent a shortage in the market.

The broader monetary indicators reveal a deceleration in broad money (M2) growth to 12.9 percent as of end-September from 14.2 percent at end-June 2023. This slowdown is attributed to the continued deceleration in private sector credit and a more than seasonal retirement in commodity operations financing, according to the SBP’s recent monetary policy statement.