Banks’ deposits rise 10 percent to Rs14.6 trillion in 2019

KARACHI: Banks deposits in 2019 rose in double digits to 10 percent as amnesty scheme and higher interest rates help boost inflows, a brokerage report said on Friday,

Deposits accelerated to Rs14.6 trillion in 2019 up from Rs13.3 trillion in previous year. “The deposit growth came in better than last year’s growth of 8 percent, but remained lower than the 5-year average growth of 12 percent,” analyst Fawad Basir of Topline Securities said in a research note.

The rise in deposit growth was attributed to higher interest rates and aggressive efforts by banks to attract depositors.

“Banks’ focus for deposit mobilisation remained more towards investments compared to advances during the year given the high yields on government papers.” The report said investments grew by 16 percent to Rs8.8 trillion in 2019, with investment to deposit ratio increasing to 60 percent in 2019 from 57 percent in 2018.

Banks have increased the rates they pay on saving accounts after increase in policy rate. There is a lot of money going into savings accounts as customers are getting higher returns on such accounts. The policy rate has increased by 7.50 percentage points since January 2018.

Moreover, a good portion of the deposit inflows came during the month of June under the government amnesty scheme, helped drive deposits last year. Generally, banks gear-up their deposit mobilisation efforts at half-year end (June) and yearend (December), which results in more inflows.

“We see deposit growth in the range of 10-12 percent in 2020,” Basir said. The Currency in Circulation (CIC) in 2019 registered an increase of 19 percent to Rs5.39 trillion. The CIC, as a percentage of M2 (money supply), clocked in at 29 percent above the historic five-year average of 27 percent.

With prevailing high level of inflation, this trend can be attributed to growing apprehensions of businesses and households over increased financial scrutiny in the country.

Bank advances grew by just 3 percent in 2019 hindered by high interest rates and slowdown in overall economic activity. Over the past 3-years, advances have grown at an average of 19 percent.

Slowdown in advances growth was imminent given macroeconomic conditions, and multi-year high interest rates. The advance to deposit ratio dropped to 56 percent from 59 percent. Advances are likely to grow at 11-13 percent in this year at the behest of economic recovery and an expected decline in interest rates, the report said.