PHOTO: Reuters
The deposits had been at Rs13.46 trillion at the end of May 2019, according to the State Bank of Pakistan (SBP). “The jump is clearly due to the amnesty-related flows; prize bond encashment, real estate, US dollar conversion, etc,” Alpha Beta Core CEO Khurram Schehzad said.
Under the Assets Declaration Scheme 2019, about 137,000 citizens got their hidden assets worth Rs3 trillion legalised by paying nominal taxes at 1.5-6%, totalling Rs70 billion. The Pakistan Tehreek-e-Insaf (PTI) government launched the scheme on May 14, which ended on July 3 this year.
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Experts said the deposits partially grew following a massive hike of 150 basis points in the key interest rate to an eight-year high at 12.25% in May 2019. Taurus Securities’ analyst Mustafa Mustansir said the high interest rate helped banks to mobilise deposits from the general public to meet their cash requirements instead of continuing to count on expensive borrowing among banks.
“Banks have recently changed their advertisement campaigns towards mobilising deposits from the public by offering higher rates of return on fixed deposits for up to five years,” he said. Earlier, their advertisement campaigns were focused on offering services to depositors like free cheque books and other free-of-cost services, he added.
Besides, the offer of higher rates of return attracted people to relocate investments to secured fixed deposits from risky investment instruments like gold and stocks.
Sherman Securities’ analyst Chandar Kumar said banks mobilised deposits in June and December ever year to maintain books with a solid cash flow. The new deposits would help banks earn higher net interest income (NII) through investment in long-term and short-term government-backed security papers, like Pakistan Investment Bonds (PIBs) and Treasury Bills.
The investment in PIBs and T-bills helped them offer loans to federal and provincial governments for budgetary financing since IMF had stopped them from such borrowing from the central bank under a bailout worth $6 billion, he said.
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Deposits in first 11 months
Earlier, bank deposits grew merely 3% in first 11 months of the fiscal year that ended on June 30, 2019.
The deposits stood at Rs13.46 trillion at the end of May 2019 compared to Rs13.06 trillion at the end of June 2018, reported the central bank.
Experts linked the sluggish growth in deposits with the higher rate of withholding tax on cash withdrawal from banks and increase in circulation of the most expensive prize bonds worth Rs40,000 in the undocumented economy.
The PTI government increased the rate of withholding tax to 0.6% on cash withdrawal worth over Rs50,000 in a day from banks by non-filers of tax returns in September 2018 compared to 0.4% earlier.
Due to the increase in the tax rate, non-filers, who were over 95% of the total bank depositors, kept their cash out of the banking system.
Many preferred to convert the cash into prize bonds worth Rs40,000 each, which was easier to carry and pay for local business and trade transactions. The central bank later discontinued Rs40,000 bonds.
BankIslami CEO Syed Amir Ali said the deposits grew at a sluggish pace by May due to the large “black economy and the government going after Benami bank accountholders in a bid to combat money laundering and terror financing.”
The banks recorded a drop of Rs200 billion in deposits in April. This was the same month when national savings schemes attracted new investments equivalent to the amount banks lost in deposits, he added.
Published in The Express Tribune, July 9th, 2019.
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