Bank deposits jump by 17.4pc on record remittances

As bank deposits grew by 17.4 per cent during the last 12 months, the investments in risk-free government securities also rose with higher percentage compared to advances.

The half-yearly report of the State Bank of Pakistan (SBP) showed that the total deposits of the scheduled banks soared to Rs19.828 trillion in September from Rs16.886tr in September 2020, an increase of Rs2,942 billion.

The banks remained liquid during the last 12 months due to record growth in the remittances which ultimately translated into local currency and found place in banks. However, the major growth was recorded during the first nine months (JanuarySeptember) of the calendar year 2021 as deposits increased by Rs2,743bn or 16pc.

Banks are inclined to invest in government papers that earn them riskfree high returns. The total investment of the schedule banks rose 27pc to Rs14.096tr in September from Rs11.090tr in September 2020, an increase of Rs3006bn.

Investments in riskfree govt papers grew 27pc in last 12 months During 9MCY21, the total investment increased by Rs2,676bn or 23.4 per cent. The banks earned huge profits during the calendar year 2020 due to higher rates of returns on government papers.

However, the advances didn't go up like investments during the 12-month period under review. The SBP reported that the bank advances increased by Rs1,192bn, or 14.7pc, to

Rs9.286tr in September compared to Rs8.094tr in September 2020.

However, the bank advances increased by Rs819bn or 9.6pc in 9MCY21. Bankers said the advances never increase like investments as the risk is high. It was also noted that during the 12- month period Covid-19 was also a reason for cautious approach adopted by the banks amid economic uncertainty.

Bankers said the bank deposits would grow further as the country had received record $8bn remittances during the first quarter of 2021-22.

The investment by the banks remained high despite steep cut in the interest rate which ultimately reduced the returns on government papers. However, the advances did not go up despite low interest rate.

The central bank had slashed the interest rate from 13.25pc in March 2020 to 7pc in June 2020, but the uncertainty of Covid-19 did not encourage the borrowers to benefit from the low-cost of money.

The International Monetary Fund (IMF) forecast inadequate growth rate of four per cent for Pakistan coupled with elevated rate of inflation and stubborn unemployment rate during the current fiscal year.

This growth rate is exactly the same as projected by the Asian Development Bank (ADB) about two weeks ago and significantly higher than 3.4pc forecast by the World Bank a few days ago, which was rejected by the government as unrealistic.

Fitch Solutions had projected Pakistan's growth rate at 4.2pc which was significantly lower than the budgeted target of 4.8pc. The State Bank of Pakistan has anticipated GDP growth at the higher side of 4-5pc.

Projects higher inflation, unemployment during current fiscal year In its World Economic Outlook (WEO), the Washington-based lending agency projected the average rate of inflation at 8.5pc, current account deficit at 3.1pc of GDP and unemployment rate at 4.8pc during current fiscal year.

The IMF projected the economic growth rate recovering slowly to 5pc of GDP by FY2026, which it had estimated in April this year. It said the rate of inflation would slide to 8.5pc this year against 8.9pc last fiscal year but would rise again to 9.2pc by the end of next year.

The Fund expected the Consumer Price Index to slowly come down to 6.5pc by FY2026. It estimated current account deficit would rise from 0.6pc of GDP in FY2021 to 3.1pc next year (FY2022) and then reduce to 2.8pc by FY2026.