Bank deposits fall Rs1 trillion in January 2022
As the race among financial institutions for accumulating deposits before the close of year comes to an end, the deposits in banks showed a drop of Rs1 trillion (around 5%) to Rs19.95 trillion in January 2022.
The deposits hit an all-time high of Rs20.97 trillion in the prior month of December 2021, according to the State Bank of Pakistan (SBP).
In December each year, banks often ask their clients to park excess funds in their bank accounts for a brief period so that the banks can close the year with higher deposits.
“The outflow of short-term deposits results in depletion of the overall deposits at banks in January,” Arif Habib Limited (AHL) economist Sana Tawfik said while talking to The Express Tribune.
On a year-on-year basis, however, the deposits grew almost 17% to Rs19.95 trillion in January 2022 as compared to Rs17.08 trillion in the same month of previous year.
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Increase in economic activities and surge in the inflow of workers’ remittances from overseas Pakistanis played a key role in boosting the deposits.
Besides, bank advances (credit to the private sector) to deposit ratio (ADR) surged to 50% in January 2022.
Earlier, the government had directed the banks to increase their ADR to 50% or pay an additional tax in the range of 2.5-5%.
“The significant growth in disbursement of housing finance played a vital role in hitting the 50% ADR, as the central bank gave housing finance targets to commercial banks on a quarterly basis,” Tawfik pointed out.
The government supported the housing and construction sector to revive economic activities following the impact of Covid-19 to create job opportunities mainly for the daily-wage earners and help the salaried class to own a house.
The advances slightly decreased by Rs205 million to Rs9.94 trillion in January 2022 compared to the prior month.
On a year-on-year basis, it increased by Rs1.48 trillion (or 17.44%) to Rs9.94 trillion in January as compared to Rs8.46 trillion in the same month of previous year.
The banks’ lending to the government (through investment in T-bills and Pakistan Investment Bonds) hit a new historic high of Rs14.42 trillion in January 2022.
The investment stood at Rs14.12 trillion in December 2021 and Rs11.42 trillion in January 2020, according to the central bank.
Accordingly, the investment to deposit ratio (IDR) hit a new high of 72% in January 2022.
The investment in T-bills and PIBs kept surging, following the government’s agreement with the International Monetary Fund (IMF) to stop borrowing from the central bank.
Thus, the government resorted to borrowing from commercial banks to overcome the budgetary financing.
Published in The Express Tribune, February 11th, 2022.
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