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Banking deposits hit all-time high due to interest rates: SBP

Banking deposits hit all-time high due to interest rates: SBP

KARACHI: The deposits of banking system hit all-time high of Rs14.672 trillion by end of January 2020 owing to higher returns on attractive interest rates.

According to State Bank of Pakistan (SBP), the deposits of banking system grew by 12.36 percent to Rs14.672 trillion by January 2020 as compared with Rs13.057 trillion in the same month of the last year.

The banking deposits were previously hit all-time high of Rs14.632 trillion by end of December 2019.

Analysts said that the higher interest rate attracted the investors to keep their money in banking system for higher returns.

The SBP kept the policy rate unchanged at 13.25 percent in the last monetary policy on January 28, 2020.

The analysts also believed that the slowdown in economy also discouraged new investment in the industrial and other avenues. Therefore, profit through banking deposits has become prime option.

The higher deposits also provided room for banks to invest in government papers. The higher investment in government securities resulted in significant profitability of the banks.

Analysts said that the year 2019 was an exceptional year for the banking sector with profitability increasing by 20 percent or Rs30 billion to reach Rs177 billion, in spite of economic slowdown.

The primary driver this year has been the net interest income which has increased by 27 percent from Rs486 billion to Rs620 billion, which is mainly due to higher interest rates. Weighted average policy rate in 2019 remained 12.2 percent compared to 7.2 percent in 2018.

In absolute terms, the highest yearly profit was earned by MCB bank (Rs23.8 billion) followed by UBL (Rs19 billion) and NBP (Rs16.6 billion). However in terms of earnings growth BIPL came out on top with 247 percent growth followed by MEBL with 73 percent and AKBL with 58 percent growth, said analysts at Arif Habib Limited.

As mentioned Net Interest Income (NII) of the banks remained major earnings driver in 2019. In Pakistan rising interest rates bodes well for banks as around 34 percent of deposits are non-remunerative (Current Deposits on which banks give no return) that leads to a higher spread. Top banks with the highest growth in NII are BIPL (78 percent), MEBL (65 percent) and SCBPL (50 percent).