KARACHI: Deposits in Pakistani banks have grown by 22% YoY to Rs19.8 trillion ($124 billion) as of June 2021, which is the highest growth in 14 years.

Growth in deposits has been fueled by higher remittances (+27% YoY to $29.4 billion and +30% YoY in PKR terms), while business activity (cash-based) too was hindered due to COVID-19 resulting in an increase in banking deposits.

Investments of banks have grown by 29% YoY to Rs13.7 trillion ($86 billion) as of June 2021. The excess liquidity is being placed in investments by banks due to muted growth in advances.

Advances grew by 10% YoY as of June 2021 to reach at Rs9 trillion ($56 billion) as banks remained wary of overall economic conditions due to COVID-19. However, growth of 5%, QoQ in banks lending, is an indication for improving outlook.

Investment to deposit ratio (IDR) has increased from 66% in Jun-2020 to 69% in June 2021, but is down from 70% in March 2021.

Advances to Deposit Ratio (ADR) has declined from 51% in Jun-2020 and 48% in March 2021 to 45% in June 2021. We expect ADR to improve going forward as the government has imposed tax on banks which fail to meet the minimum threshold of 50% ADR and as economic activity picks up.

Total provisions against advances stood at Rs629 billion ($3.9 billion) and remained unchanged on YoY and QoQ basis, despite overall concerns of a sharp spike in Non Performing Loans (NPLs) due to COVID-19 linked deterioration in the financial health of corporates.

M2 growth clocked in at 14% YoY in FY21 primarily driven by higher government borrowing from scheduled banks (+17% YoY).
Currency in Circulation (CIC) has increased by 14% YoY during the same period. CIC as a % of M2 clocked in at 29%, above past 5-year average of 27%, likely due to low-interest rates and an effort to stay out of sight of tax authorities.


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