Bank deposits climb sevenfold to Rs9.153trln in last 15 years

KARACHI: Bank deposits surged seven-fold to Rs9.153 trillion during the last 15 years as there was a growth in money supply and the central bank’s efforts encouraged deposit mobilisation in this period, official data showed.
But, low interest rates environment, which hurts savings, are a biggest impediment to deposit mobilisation in near future.
Pakistan’s commercial banks held Rs1.276 trillion in June 2001. This figure rose Rs7.876 trillion at the end of June 2015, the State Bank of Pakistan’s (SBP) data showed.
The advancement in financial intermediation process led to increased velocity in the currency circulation.
Over the last 15 years, a persistently higher rate of growth in money supply on account of higher inflation has been the single biggest factor behind the sharp increase in deposits held by banks.
The annual money supply (M2) grew 11.62 percent in 2001. It reached a peak of 19.72 percent during 2007. The M2 grew at 13.5 percent at the end of fiscal year 2014/15.
Analysts said with the growing middle income class, improving households’ earnings and the SBP's push for financial inclusion, there is huge potential for deposit mobilisation by banks. Imposition of withholding tax on bank transactions for the income tax non-filers is also hampering deposits growth.
“We agree monetary policy has to strike a balance between supporting borrowers versus savers,” said senior economist Bilal Khan at Standard Chartered Bank.
“Deposit mobilisation faces competition from national savings schemes that are included in the broader monetary measure, M3,” Khan said.
Bankers said Islamic and branchless banking are also providing greater opportunities to increase deposits.
A banker said average 600 to 700 numbers of bank accounts are opened every year.
“There has been a definite focus on increasing our liability franchise, which is duly substantiated by the large branch

network duly catering the financial needs of our urban and rural population,” said spokesperson at MCB Bank.
“Moreover, for a quicker penetration into the unbanked segment, branchless banking channels are being structured with limited know-your-customer requirements to facilitate customers through retail agent network.” Personal deposits were up to Rs4.268 trillion in June this year from Rs471 billion in June 2001.
The SBP’s data further showed that size of the government deposits held by the banks rose to Rs985.439 billion at the end of June 2015 from Rs95.225 billion in June 2001.
“The privatisation of ‘big four’ [banks], increase in their presence across the country along with offering better lending and deposit products and the commencement of the Islamic finance are believed to have played an important role in deposits mobilisation,” said an analyst.
During the past 15 years, many domestic and foreign players entered Pakistan’s financial market increasing their penetration in the country,” he said. Presently, there are 35 banks operating in the country.
The tight monetary policy stance by the State Bank, during the period under review, encouraged people to put their money into bank accounts as for savers higher interest rates meant a greater return on cash stashed in saving accounts.
The interest rates stayed higher between seven and 14 percent during the period under review.
According to the SBP’s data, the province of Punjab emerged as highly banked geography where a large number of people have accesses to financial services. The total size of bank deposits in Punjab was Rs4.035btrillion at the end of June 2015 as compared to Rs532 billion in June 2001.
Deposits held by public, government, foreign constituents, businesses in Sindh rose to Rs2.997 trillion in June 2015 from Rs443.53 billion in June 2001.
The banks mobilised Rs675.58 billion in deposits as against Rs100. 247 billion 15 years ago from Khyber Pakhtunkhwa.
However, Balochistan remained underserved in terms of banking services.
The country’s real gross domestic product grew at the average rate of three and four percent over the past 15 years, but banking industry’s average deposit base grew at 12 percent. Currently, bank deposit-to-GDP ratio is 32 percent, which is lowest in the region. Even it stands at 52 percent in Bangladesh.
“The shift in asset concentration over the recent years has been on account of lack of good credit opportunities. Banks have to keep a check on the infection ratio while ensuring that the credit opportunity falls within the risk management framework defined by the banks,” said the MCB spokesperson.