KARACHI
The banking sector deposits are up 19 per cent YoY to Rs 11.9 trillion in June 2017, which is a 6-year high. An analyst from Topline Securities attributes this to a 17 per cent YoY Broad Money (M2) growth in June 2017.
Deposit growth remained higher than expected and could act as a catalyst in supporting the profitability of the banks in times of tough Net Interest Margins (NIMs).
Advances also grew in tandem as they increased by 21 per cent to Rs 6.1 trillion. Such growth in advances was last seen in June 2006.
This phenomenal growth is due to additional liquidity available with banks, unattractive yields prevailing on government securities and improving macros.
Despite this above average growth, advance to deposit ratio (ADR) of the sector stood at 52 per cent, which is still well below the levels seen in 2008 when ADR of the sector stood at 84 per cent.
Investments, on the other hand, grew by 8 per cent to Rs 8.1 trillion as investment to deposit ratio (IDR) declined to 68 per cent in June 2017 vs 71 per cent in May 2017.
Furthermore, breakdown of broad money numbers shows that government has borrowed Rs 1.4 trillion (June 30th to Jun 23rd 2017) from central bank as against net retirement of Rs 382 billion in the same period last year.
Borrowing from central bank is inflationary in nature and if it persists for the long duration, it could lead to higher inflation and interest rates (positive for banks). It also reduces the crowding out effect of private sector credit.
“High deposit growth rate, expected reversal in interest rates from 2018 and a reducing loss ratio bodes well for the sector,” the analyst said.
