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Banks’ deposits grow by 18% YoY in 1Q2021, highest in 14 years

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Banks deposits

KARACHI: The deposits of Pakistan Banks have grown by 18% YoY to Rs 17.9 trillion in 1st quarter 2021, which is the highest growth in March quarter in the last 14 years, the SBP data said.

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.

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