Courtesy low interest rate, advances increase to Rs5.1tr

Register 6.9% growth in Jan-Jun, highest since 2012

KARACHI: Thanks to the record-low benchmark interest rate, advances of the banking sector grew 6.9% to Rs5.1 trillion in the first half of 2016, latest data released by the State Bank of Pakistan (SBP) shows.

This is the highest rate that advances have grown at for the first half of calendar year since 2012 when the increase clocked up at a little more than 7%.

The year-on-year increase in advances in 2015-16 remained 11.7% as opposed to the growth rate of 6.8% in the preceding fiscal year, SBP data shows.



“We anticipate this momentum to continue and expect advances growth to cross 10% in 2016 versus growth of 7% in 2015,” according to Topline Securities research analyst Umair Naseer.

In the last month of the fiscal year alone, advances rose 1.4% from a month ago, SBP data shows.

Naseer said the faster pace of increase in banking advances should be attributed to multi-year low interest rates and improving macros of the economy.

The central bank has cut the benchmark interest rate to 5.75% in the wake of declining inflation. This has encouraged businesses to borrow heavily to expand their operations in a low-interest rate environment.

As for the deposits, SBP data shows they recorded an increase of 8.1% in the first half of the current calendar year to Rs10 trillion. In contrast, the year-on-year increase in deposits had clocked up at 9.5% in the same period of 2015.

The slight decline in the pace of deposits growth should be attributed to the imposition of withholding tax on banking transactions of more than Rs50,000 in a day by non-filers, he said. Analysts believe the withholding tax encouraged some people to stash their cash out of the banking system to avoid the additional cost on transactions. Calling the increase in deposits for Jan-Jun “decent” in the wake of the new tax, Umair said he expected deposits to grow at 12% in 2016.

SBP data shows investments in government papers have grown 12.1% since the beginning of 2016 to Rs7.5 trillion at the end of June. In contrast, growth rate had been 13.8% for the first half of 2015, SBP data shows.

Advances as a percentage of deposits, also known as advances-to-deposits ratio (ADR), increased to 51% in June as opposed to 50% a year ago, Naseer said. A faster increase in investments was witnessed over the same period, as investments-to-deposits ratio (IDR) rose to 75% in June compared to 64% in the same month of 2015, which is reflective of the banks’ propensity to park liquidity in riskless government papers.

Published in The Express Tribune, July 16^th, 2016.

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