Banking deposits grow 12pc, advances up 1pc in FY2020

Karachi: Banking deposits grew 12 percent year-over-year to Rs16.23 trillion by June-end, but advances slightly rose one percent to Rs8.2 trillion despite massive rate cuts, a brokerage reported on Tuesday.

Banking deposits rose five percent month-on-month in June, and were up 11 percent year-to-date, according to Topline Research.

“Advances have grown just 1 percent year-over-year, and actually declined two percent month-on-month in June 2020 despite aggressive cuts in interest rates by the central bank since March 2020,” said analyst Fawad Basir.

“This was due to the impact of the pandemic COVID-19, which has caused the overall slowdown in the economic activity. Advances are up 1 percent year-to-date.

The State Bank of Pakistan lowered its policy rate by cumulative 626 basis points to seven percent – largely in line with the market expectations – since March 17 to address the worsening outlook of domestic economic activity in the wake of economic halt after COVID-19 outbreak.

Advance-to-deposit ratio dropped to 51 percent in June from 56 percent in June a year earlier and 55 percent in March.

“Going forward, we expect deposit growth in the range of 10-11 percent during 2020 (versus historical 3-year average growth of 11 percent), while we expect advances to grow by around 5 percent during the year (versus historical average 3-year growth of 14 percent),” Basir added.

The rate cut was in addition to various refinance schemes under which loans are provided with preferential terms and conditions to promote growth in priority sectors of the economy.

The relaxation allowed for deferment in repayment of principal amount for one year for corporate, consumer, agriculture, SMEs and microfinance sectors, is available on financing of banks under SBP’s refinance schemes.

In 2Q2020, deposits increased higher-than-largely-expected of 7 percent, as net domestic assets of the banking system increased six percent during the period, on the back of 11 percent increase in government borrowings for budgetary support.

Investments grew 40 percent year-on-year and three percent month-on-month to Rs10.68 trillion by June-end.

The same was up 21 percent year-to-date compared with six percent growth by March-end.

Investment-to-deposit ratio increased to 66 percent in June-end from 53 percent in June last year and 61 percent in March. The currency in circulation increased 17 percent year-to-date to Rs6.19 trillion, with currency in circulation as a percentage of M2 clocking in at 31 percent, above past 5-year average of 27 percent.