Bank deposits up 11.63pc to Rs11.880 trillion in February

KARACHI: Deposits with banks grew 11.63 percent to Rs11.880 trillion at the end of February 2018 in a sign that the sector is enjoying the benefits of economic expansion, according to the figures released by the State bank of Pakistan on Wednesday.

Analysts said banks have succeeded in attracting a decent inflow of deposits because of improving economic activity. “The main driver for strong bank deposits is economic growth,” said an analyst at Taurus Research.

“This (upward momentum in bank deposits) is not incentive based. It’s reflective of a robust domestic demand and strong money supply growth,” the analyst added.

Money supply or M2 grew 11 percent year-on-year in December 2017.

Surging corporate deposits have also led to an increase in overall bank deposits. On the other hand, private sector deposits increased to Rs2.802 trillion in February from $2.586 trillion a year earlier.

An analyst said savers could park more money into banks on expectations of continuous tightening of interest rates this year. “The banks are set to get better profit rates on their deposits with more hawkish monetary policies down the line,” he added.

Banks’ profits have remained subdued due to low interest rates during the last three years. Moreover, high lending requirement also forced banks to mobilise more funds.

Banks are highly focused on low-cost core deposits, which are more attractive for them, especially in the context of low earnings.

Many analysts see growth in deposits staying strong this year in anticipation of further interest rates hikes.

The SBP raised its key policy rate by 25 basis points to 6 percent in January 2018.

“Deposits are expected to grow 12-15 percent year-on-year, continuing to provide plentiful low-cost funding,” said an analyst at Taurus Research.

“When banks increase lending they need more deposits…so they are willing to pay high deposit rates.”

“The core funding source of the banks i.e. deposits are likely to improve in the upcoming quarter for two reasons. First, banks would proactively seek to mobilize deposits in order to meet the anticipated rise in private sector advances. Second, the expected increase in advances, would further improve deposits base due to the feedback effect,” the SBP said in a review of the banking sector’s performance during the third quarter of 2017.

Moody’s assigned “B3 Stable” rating to the banking sector for the next 12-18 months, highlighting strong loan and deposits growth, improving asset quality; and resilient capital adequacy.