Bank deposits jump 17.4% on record remittances – Journal

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KARACHI: While bank deposits have increased by 17.4 percent in the past 12 months, investments in risk-free government securities have also increased with a higher percentage than advances.

The semi-annual report of the State Bank of Pakistan (SBP) released on Wednesday showed that the total deposits of listed banks climbed to 19.828 billion rupees in September from 16.886 billion rupees in September 2020, an increase of 2 942 billion rupees.

Banks have remained liquid over the past 12 months due to record growth in remittances which eventually translated into local currency and found their way into banks. However, the largest growth was recorded in the first nine months (January-September) of calendar year 2021, with deposits increasing by 2,743 billion rupees or 16 pc.

Banks are inclined to invest in government securities which provide them with high risk-free returns. The total investment of calendar banks increased by 27pc to Rs14.096tr in September from Rs11.090tr in September 2020, an increase of Rs3006bn.

Investments in risk-free government papers have increased by 27% in the past 12 months

During 9MCY21, total investment increased by 2,676 billion rupees or 23.4 percent. Banks made huge profits in calendar year 2020 due to higher rates of return on government papers.

However, advances did not increase like investments during the 12-month period under review. The SBP reported that bank advances increased by Rs.1192 billion, or 14.7 pc, to Rs 9.286 in September, from Rs 8.094 in September 2020.

However, bank advances increased by Rs819bn or 9.6pc in 9MCY21. Bankers said that advances never increase like investments because the risk is high. It was also noted that during the 12-month period, Covid-19 was also a reason for the cautious approach taken by banks amid economic uncertainty.

Bankers said bank deposits will continue to grow as the country received record $ 8 billion in remittances in the first quarter of 2021-2022.

Bank investment has remained high despite a sharp drop in interest rates which ultimately reduced yields on government papers. However, the advances have not increased despite the low interest rate.

The central bank had lowered the interest rate from 13.25pc in March 2020 to 7pc in June 2020, but the uncertainty of Covid-19 has not encouraged borrowers to take advantage of the low cost of money.

Posted in Dawn, le 14 October 2021


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