Bank liabilities outgrow assets in FY21

KARACHI: Banks have gradually increased their dependence on borrowed money to continue performing their operations over the past one year, as requirement for money to meet the demand of depositors and borrowers went up amid Covid-19 in Pakistan.

Accordingly, the size of banks' liabilities has grown at a faster pace than their assets, slashing their net worth in the fiscal year 2020-21 compared to the preceding fiscal year 2019-20.

Bank borrowing from the State Bank of Pakistan (SBP) and the inter-bank channels shot 43.6% to Rs4.26 trillion in FY21 compared to Rs2.97 trillion in FY20, according to Pakistan central bank's data uploaded.

Interestingly, the borrowing by banks went up notably despite the fact that deposits of bank accountholders rose by just 17.5% to Rs20.44 trillion over the past one year, suggesting there was ample liquidity available in the banking system to meet its clients' requirement.

The increased borrowing, in addition to growth in deposits, played a key role in widening liabilities sharply by 20.1% in FY21 compared to 13.4% in FY20. On the other hand, the assets also surged 18.9% in FY21 compared to 14.4% in FY22, but the pace of growth in assets was lower compared to liabilities.

AHL Research Economist Sana Tawfik said that borrowing by banks increased as the central bank kept in view the outlook for increased demand for money in the system during the two Eid festivals that took place in May and July 2021.

She said that the receipt of workers' remittances from overseas Pakistanis have continued to play a key role in enhancing deposits of bank accountholders.

"The occurrence of Eid festivals in recent months, however, slowed down the remittances on the back of prolonged holidays in the two months in Pakistan and in Gulf countries where majority of Pakistanis live," she said.