Bank deposits soar 21 percent year/year in April as high rates lure savers

KARACHI: Deposits at banks surged 21.3 percent in April from a year earlier, driven by high interest rates and a crackdown on currency smuggling, as savers sought better returns on their money.

The increase, to Rs28.4 trillion in April from Rs23.429 trillion in the same month a year earlier, was also fueled by an expansion of banks' branch networks and a jump in remittances from overseas Pakistanis, according to central bank data released on Monday.

The prior month's deposits were Rs28.322 trillion.The decline in the amount of currency in circulation (CiC) as a result of the attractive interest rates banks give on savings accounts, as well as the crackdown on the smuggling and hoarding of US dollars, according to analysts, indicates that deposits in the banking sector are increasing.

The State Bank of Pakistan maintained the benchmark interest rate at a record 22 percent for the seventh straight time last month.The larger financial institutions, with their extensive branch networks and well-known brands, draw in more clients because they don't charge a deposit. Since the consumer is not required to pay interest on these current accounts, they represent zero-cost deposits. In this continued high-interest-rate environment, banks see great value in zero-cost deposits.

For banks, these deposits are very important because they can be used for lending or invested in government securities. The banks receive interest revenue from both of these options, which boosts their total financial performance and profitability and accounts for the startling rise in income.

The increase in remittances also helped boost deposit inflows. Remittances from Pakistani citizens employed abroad increased by 28 percent year-on-year to $2.812 billion in April, however, they decreased by 5 percent from the same month a year ago.

The advances of the banking sector stood at Rs12.028 trillion in April, down 0.7 percent from a year ago. The advances came at Rs11.964 trillion in March 2024.The decline in the demand for bank loans from businesses and consumers was caused by a number of factors. Credit demand was slowed in part by fiscal consolidation and a persistently high cost of borrowing.

Banks' investments increased significantly to Rs27.282 trillion in April, a 38.5 percent year-on-year increase. That compared with Rs19.695 trillion in April of last year. On a month-on-month basis, investments rose by 3.8 percent.

To cover its expenditure needs, the government largely relies on borrowing from the banking industry.The primary drivers of the government's borrowing from commercial banks are a larger budget deficit, scheduled repayment to the SBP, a significant decrease in non-bank funding, and the accumulation of government deposits with the SBP.

The advance-to-deposit ratio stood at 42 percent in April, compared with 52 percent a year earlier. The investment-to-deposit ratio clocked in at 96 percent in April 2024. That compared with 84 percent in the same month last year.