Growth in Deposits has been fueled by higher Remittances (+29% YoY in US Dollar and 31% YoY in Pak Rupee terms during 1st quarter 2021), while business activity (cash-based) hindered due to COVID-19 may have also resulted in increase in banking deposits.
According to Topline Brokerage house report, the investments have grown by 35% YoY to Rs 12.6 trillion in 1st quarter 2021. The excess liquidity is being placed in investments (primarily T-Bills) due to subdued growth in Advances.
Advances grew by 4% YoY (vs. 10-year average of 9%) in 1Q2021 as banks remained weary 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.
IDR had already depicted an improvement to 67% in Dec-2020, which has now increased to 70% by Mar-2021. To recall, this was 67% in Sep-2020 and 60% in Dec-2019. ADR has dropped to 48% as of Mar-2021 from 56% in Mar-2020 (to recall, this was at 47% in Sep-2020 and 56% in Dec-2019).
Provisioning have seen an increase as banks have opted to increase General Provisioning (overall outstanding stock up 20% YoY as of Mar-2021) in the wake of COVID-19. Fresh provisioning during the quarter stands at Rs26bn, compared to Rs5bn in Dec-2020 and Rs32bn in Sept-2020 quarter.
M2 growth clocked in at 15% in 1Q2021 primarily driven by higher government borrowing from scheduled banks (+12% YoY). The Currency in Circulation (CIC) has increased by 16% during the same period.
CIC increased to Rs6.6trn by end Mar-2021, with CIC as a % of M2 clocking in at 30%, above past 5-year average of 27%. Reasons for increasing CIC can be attributed to low interest rates and evasion from tax authorities.
Going forward, the analyst expects Deposit growth in the range of 12-14% during 2021E, while we expect Advances to grow by around 5-7%, where banks are expected to remain risk averse given concerns over further waves of COVID-19.