Bank deposits up 17pc to Rs17.1trln in 2020

KARACHI: Bank deposits jumped 17 percent in 2020, the highest growth in four years, mostly owing to higher inflows of remittances from overseas and lower business activity amid restrictions aimed at arresting the spread of pandemic, data showed on Wednesday.

Topline Securities, a brokerage, in a report said bank deposits increased to Rs17.1 trillion in 2020 from Rs14.632 trillion in 2019, depicting a growth better than the 10-year average of 13 percent.

“Growth in deposits has been fueled by higher remittances (17.5 percent year-on-year in USD and 27.5pc YoY in PKR terms during 11 months of 2020), while lack of business activity due to COVID-19 (cash-based) may have also resulted in increase in bank deposits,” the brokerage said in a report.

M2 growth clocked in at 16 percent in 2020 primarily driven by the stellar deposit growth this year and 19 percent increase in Currency in Circulation (CIC). CIC increased to Rs6.30 trillion by end December 2020, with CIC as a percent of M2 clocking in at 29 percent, above the past 5-year average of 27 percent. Reasons for increasing CIC can be attributed to low interest rates and evasion from tax authorities, the report added.

“We expect deposit growth in the range of 12-14 percent during 2021, while we expect advances to grow by around 4-6 percent, where banks are expected to remain risk averse given concerns over further waves of COVID-19,” the brokerage said in its report. Investments grew 31 percent to Rs11.5 trillion in 2020, it said, adding that at the start of the year high yield on offer had already lured banks to move towards investments, which were compounded further as the pandemic hit the strangling business activity and in turn, loan growth.

According to the report, advances grew just 2 percent in 2020 as banks remained wary of overall economic conditions due to COVID-19; however, the last quarter of 2020 for advances has been relatively better with 3.4 percent quarter-on-quarter growth.

“The aggressive cuts in interest rates by the Pakistan’s central bank since March 2020 may be starting to reap fruits as the impact of COVID-19 pandemic also lowers and economic activity picks up,” the report noted.

Investment to deposit ratio (IDR) had already depicted an improvement to 67 percent in September 2020, which has been maintained at year end. It was 66 percent in June and 60 percent in December 2019.

The report said the higher IDR was largely due to high interest rates at the start of the year and low appetite for risk (advances) due to COVID-19. Moreover, advance to deposit ratio dropped to 48 percent from 49 percent in September (51 percent in June and 56 percent in December 2019), it added.

As per the report, provisioning also saw a substantial increase as banks opted to increase general provisioning in the wake of COVID-19; however, the last quarter has seen provisions stabilising as the banks feel they have adequately provided for up until September 2020.