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Pakistan banking sector hits 18-year high deposit mark in 2020

Pakistan banking sector hits 18-year high deposit mark in 2020

No doubt, the Pakistan’s banking sector has played an important role in continuing the Pakistan’s economic system during pandemic, which can be mostly attributed to the digital banking revolution. The Government of Pakistan focuses towards the adoption of digital banking during the past year. Whether it was the easy, timely and secure transmission of monetary assistance to the underprivileged masses of the country. According to the State Bank of Pakistan (SBP), Pakistan banking sector deposits during 2020 grew by 22 percent to hit an 18-year high at Rs 17.876 trillion. Despite a significant rise in deposits, the banks failed to energise the economy as advances remained at just 10 percent of the deposits added during 2020. Furthermore, the banking sector advances during 2020 were recorded Rs 332 billion. Meanwhile, the banks used higher advances to invest in government papers. During 2020, the banks invested Rs 3.186 trillion in T-bills and Pakistan Investment Bonds, taking the total investment in the government papers to Rs 11.552 trillion.

During the year under review, statistics further reveal that the banking sector investments grew by 38 percent. Both the net foreign assets of the banking system and the domestic assets have grown during 2020 which built the banks’ deposits. People are spending less and are keeping most of their money in deposits because of the pandemic. Different research studies identified that banking has always been the backbone of economic growth in a country. It offers financial assistance to the private sector and governments. It is clear that countries with stable financial sector enjoy a quick economic growth than those with less stable and unorganized financial sector. Researchers conclude that the effect of the banking sector on economic growth in less developed countries is weaker, and it is decreasing worldwide after the 1980s. For sustainable economic growth, a healthy banking sector is a prerequisite. The stable and high performance of banks means profitability and stability in the financial sector. A rise of profitability of the banking sector means better performance through the banks which in other words, means more availability of capital for investment. Various sources record that people in Pakistan did not travel and go for Umrah which means they consume less amount this year. In other words, their money remained in deposits of the banks. The Low advances could see a change with the government’s push for growing housing and constructions loans. The present government has made it mandatory for banks to extend loans for low-cost housing projects. Despite an attractive subsidised loans scheme for low-cost housing, the advances are still much lower than the expectations of the banks. Banks are still cautious about giving out loans for housing fears of high default rates.

Presently Moody’s Investor Service forecast that the economy of Pakistan would grow by 1.5 percent during the ongoing fiscal year and found Pakistani banks to be stable owing to Government of Pakistan support but banking sector risks were growing. Moody’s said in its outlook for the Pakistani banking sector. This is usually in line with 1.5-2.5 percent growth forecast for Pakistan GDP (Gross Domestic Product) through SBP compared to World Bank’s 0.5 percent GDP growth rate for the current fiscal year. The Agency expects slow economic recovery to affect loan quality, with NPLs predicted to increase over the coming months from a sector-wide level of 9.9 percent of gross loans during September last year. Meanwhile, banks’ profitability, which has materially increased during 2020, will come under pressure on lowered margins, higher loan-loss provisions given the challenging operating environment, and subdued business generation. Still, Pakistan’s economy should return to a modest 1.5 percent growth in fiscal year 2021, while Government of Pakistan and central bank responses and reforms will partially soften the Covid-19 pandemic’s impact. Furthermore, the rating agency predicted the operating situations for banking sector to enhance, but remain tough. It noted that restrictions in place to contain the spread of the coronavirus will keep economic activity below pre-outbreak levels. It noted that banking capital was modest but will remain broadly stable. According to researcher the more efficient the financial sector becomes, it is likely that country’s scarce resources can be directed to their most productive use and with this the economic growth reaches to its full potentials.

Total Deposits Of Scheduled Banks (Stock)* (Rupees in Millions)
As on lastweek of
2015 2016 2017 2018 2019 2020
January 8,463,711 9,408,102 10,703,995 12,002,239 13,057,570 14,672,801
February 8,490,383 9,385,552 10,730,194 11,933,267 12,805,163 14,815,095
March 8,508,337 9,559,122 11,170,035 12,571,277 13,456,273 15,126,310
April 8,747,487 9,767,624 11,214,048 12,276,660 13,148,866 14,475,797
May 8,911,638 9,744,399 10,992,696 12,258,375 13,459,780 15,480,920
June 9,141,126 10,060,188 11,980,697 13,062,787 14,458,307 16,229,036
July 9,106,911 10,304,705 11,701,701 12,551,434 13,747,355 16,121,585
August 9,020,408 10,165,792 11,651,413 12,691,719 13,977,401 16,327,253
September 9,021,270 10,510,703 11,979,886 13,031,815 14,025,990 16,886,204
October 9,114,441 10,446,971 11,777,383 12,666,020 13,912,112 16,663,978
November 9,162,455 10,471,739 11,969,466 13,079,179 14,311,666 16,840,840
December 9,305,012 11,202,886 12,361,806 13,353,916 14,631,875 17,875,958
Source: SBP
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