Commercial Banks’ deposits surge by 18% YoY by end-March, highest in 14 years

April 12, 2021 (MLN): The total Deposits held by Commercial Banks have grown by 18% YoY to Rs.17.9 trillion in 1QCY21, which is the highest growth in the March quarter in the last 14 years.

According to the report by Topline Securities, the growth in Deposits has been fueled by higher Remittances (+29% YoY in USD and 31%YoY in PKR terms during 1Q2021), while lack of cash-based business activity due to COVID-19 may have also resulted in an increase in banking deposits.

Meanwhile, Investments have grown by 35% YoY to Rs.12.6 trillion in 1QCY21. The excess liquidity is being placed in investments (primarily T-Bills) due to subdued growth in Advances.

Consequently, banks' investment to deposit ratio (IDR) which had already depicted an improvement to 67% in Dec-2020, has now increased to 70% by Mar-2021.

On the other hand, demand for Advances remained muted as it grew by just 4% YoY to Rs.8.6 trillion in 1QCY21 as banks remained wary of overall economic conditions due to COVID-19. However, sequential growth of 3.5% QoQ, is an indication of better economic activity during the last few months, the report said.

The advances to deposits ratio (ADR) has dropped to 48% as of Mar-2021 from 56% in Mar-2020.

Moreover, banks’ general provisioning has witnessed an increase of 20% YoY by end of March’21 as banks have opted to increase Provisioning in the wake of COVID-19. Fresh provisioning during the quarter stands at Rs.26 billion compared to Rs.11 billion in the same quarter last year.

Going by the report, M2 growth clocked in at 15% in 1Q2021 primarily driven by higher government borrowing from scheduled banks (up by 12% YoY). The Currency in Circulation (CIC) has increased by 16% YoY to Rs.6.6 trillion by end-March’21, with CIC as a percent of M2 clocking in at 30%, above the past 5-year average of 27%. The reasons for increasing CIC can be attributed to low-interest rates and evasion from tax authorities, the report said.

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