Bank deposits jump 16pc to Rs22.4 trillion in October

Banking sector deposits increased by 16 percent year-on-year, to Rs22.4 trillion in October, a local brokerage house reported, citing figures from the State Bank of Pakistan. However, deposits at banks fell by 1.8 percent on month-on-month in October. Increase in banks' deposits is due to their efforts to expand branch networks and mobilise current accounts to protect net interest margins as interest rates remain on the higher side.

Bank advances also rose 18 percent YoY to Rs11.1 trillion in October from Rs9.4 trillion a year earlier, according to Arif Habib Limited. Investments jumped by 33 percent to Rs18.3 trillion. The advance to deposit ratio (ADR) ratio stood at 49.3 percent in October up by 75 basis points YoY. The investment-to-deposit ratio (IDR) increased by 1,027 bps to clock in at 81.6 percent in October.

The rise in ADR is fueled by private sector loan growth over the period, especially due to the SBP-backed loans such as Temporary Economic Refinance Facility (TERF), housing finance, etc. Analysts expect deposit growth to remain strong, reaching 15 percent this calendar year. Analysts said the growth in advances came despite economic slowdown in the country. The government's resolve to charge from banks an additional tax if they fail to increase the ADR to 50 percent or more forced banks to find avenues to increase lending to the private sector.

The IDR rose as the government continued to borrow from commercial banks to meet its funding requirements. The government plans to borrow Rs7.025 trillion through treasury bills and bonds in October-December 2022. Due to the economic repercussions of the country's catastrophic floods, government borrowing requirements from external and local sources have risen. This may result in a higher budget deficit in the coming months. Pakistan listed banks' profitability increased by 21 percent year-on-year to Rs84 billion in the third quarter of 2022 led by strong net interest income and balance sheet growth, according to to report from Topline Securities.

Pakistan's rupee recorded losses against the US dollar, depreciating 0.12% during trading on Friday. At around 1pm, the rupee was being quoted at 222.94, after a decline of Re0.27, during intra-day trading. On Thursday, rupee had depreciated against the US dollar, to settle at 222.67 after a decline of Re0.26 or 0.12%.

In a key development, talks on ninth review of the International Monetary Fund (IMF) Enhanced Fund Facility (EFF) have been further delayed as the Fund linked the arrival of its mission to Islamabad with the finalisation of macroeconomic framework with necessary adjustments. An official, on condition of anonymity, said that the date has not yet been finalised as the Fund wants to first finalise the macroeconomic framework and then it would send the mission to Pakistan.

The development is expected to irk market sentiments, after Pakistan's perceived risk of default, measured by the 5year credit default swap (CDS), hit 75.5% just days ago, owing to uncertainty over the IMF ninth review.

Internationally, the dollar was headed for its best week in a month on Friday, as hawkish remarks from Federal Reserve officials and stronger-than-expected retail sales data have put the brakes on a pullback that was triggered by signs of softening inflation.

The US dollar index is up about 0.1% so far this week to 106.53, stabilising after a small miss on US inflation last week triggered one of the dollar's sharpest weekly drops in the free-floating exchange rate era on excitement about an end to rate hikes.

Oil prices, a key indicator of currency parity, rebounded on Friday as the dollar dipped, but prices were on track for a steep weekly decline on concerns about weakening demand in China and further interest rate hikes by the US Federal Reserve.