Bank deposits soar to record high of Rs25.6tr despite YoY deceleration: Report

In terms of value, 52 percent of conventional banking and 63 percent of Islamic banking deposits are eligible for deposit protection

Bank deposits in Pakistan reached a historic high of Rs25.6 trillion by the end of June 2023, as reported in the annual statement released by the Deposit Protection Corporation (DPC) on Friday.

According to the report, eligible deposits for protection under the DPC scheme experienced a net increase of Rs1.8 trillion, totaling Rs14 trillion, constituting 55 percent of the overall bank deposits at the end of June 2023.

Despite this surge, the report highlighted a year-on-year slowdown in deposit mobilization during the fiscal year 2023 compared to the previous fiscal year. The DPC, a subsidiary of the State Bank of Pakistan (SBP) responsible for providing deposit insurance, disclosed that the growth of deposits decelerated to 12 percent, down from 15 percent in the preceding year.

As of June 30, the report indicated that 98.9 percent of total depositors in conventional banking and 98.7 percent in Islamic banking are eligible for deposit protection in case of a bank failure. Regarding value, 52 percent of conventional banking and 63 percent of Islamic banking deposits are eligible for deposit protection.

Factors contributing to the increase in total deposits were attributed to a higher rate of return resulting from a tighter monetary policy stance and the expansion of banks’ branch networks. However, the report suggested that macroeconomic uncertainty, including inflationary pressures, and a slowdown in the inflow of foreign remittances by the Pakistani Diaspora might have contributed to the deceleration in deposit growth.

The annual report covered various aspects of the financial sector, highlighting the winding down plan approved by the federal government for the SME Bank due to insufficient capital and liquidity.

The State Bank of Pakistan proposed a plan to ensure that depositors are not adversely affected by the bank’s closure. Payouts to all SME Bank depositors were initiated based on the SBP’s proposed plan, aiming to maintain confidence in the banking system.

The report emphasized that efficient and well-functioning deposit insurance, such as that provided by the DPC, serves as a crucial financial safety net in the event of a small bank failure, alleviating distress for depositors

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