The banking industry deposits witnessed a significant decline of Rs 124 billion in third quarter of 2008, despite the relatively steep rise in weighted average return on deposits, industry sources said. They said that several factors contributed to the deceleration of deposit including high inflationary pressure, high deposit growth in previous years, depreciating Pak rupee value and significant raise in external account outflows.
Overall banking system deposits stood at Rs 4,064 billion by the end of September 2008 as compared to Rs 4,188 billion as on June 30, 2008, depicting a decline of 3 percent during the July-September of 2008, they informed. Accordingly, the share of banking system deposits in overall funding structure also declined to 73.8 percent from 76 percent in previous quarter.
Year-on-Year basis deposits posted a growth of 10.1 percent that also fell short of 25.6 percent growth in advances over the same period. A desegregated analysis of the deposits shows a persistent trend in deposits, as fixed deposits increased by 100 bps to 39 percent in Sep-08, while saving deposits also increased by 100 bps to 31 percent in Sep-08. Non-remunerative current deposits decreased by 90 bps to 22 percent whereas deposits from financial institutions declined by 60 bps to 6 percent in Sep-08.
The industry has been witnessing a gradual shift in deposits from savings to term deposits for quite some time, which is largely a result of SBP's policy to encourage the banks to mobilise longer terms deposit for financing their longer-terms assets to reduce the maturity mismatches and liquidity risk.
The currency wise composition of deposits shows a shift towards foreign currency deposits, which rose to 15.5 percent of total deposits from 13.7 percent in Mar-08 and 12.3 percent in CY07. Current deceleration in the deposits is largely due to a significant shift in public preference away from deposits, probably reflecting the effect of rising inflationary pressures, sources said.
"The banking sector in Pakistan generally experiences a sharp jump in deposits during June each year, while there is a significant shift in public preference away from deposits due to rising inflationary pressures," they added.
In addition some decline in the deposit growth was also expected due to the slowdown in GDP growth and attendant slackness in economic activities. The major decline was witnessed in the deposits of commercial banks, as the National Banks of Pakistan deposits reduced to Rs 561.499 billion in September from Rs 621.66 billion in June. Bank of Punjab deposits declined by Rs 17.383 billion to Rs 163.441 billion, Allied Bank Limited deposits stood at Rs 279.316 billion in Sep 2008 with decline of Rs 14.666 billion.
Deposits of Habib Bank Limited declined to Rs 558.741 billion in Sep from Rs 563.557 billion June, MCB bank Rs 323.968 billion in Sep from 350.722 and United Bank Limited deposits declined by some Rs 10 billion to Rs 455.369 billion in September.