At the same time M2 growth has been sluggish too, clocking in at 11 percent YoY. The slower M2 growth can be attributed to decline in Net Foreign Assets (NFA), where NFA has fallen to negative Rs 863 billion compared to Rs 428 billion in the corresponding period last year. The decline in NFA is a consequence of deep current account deficit where CA deficit for FY18 was recorded at $19 billion and lower foreign disbursements.
On the other hand, investments have decreased by 11 percent YoY. This is the first time in a decade that the sector has shown negative growth in investments. The decline in investments can be attributed to the shift of government borrowing to State Bank of Pakistan (SBP).
Topline is expecting that deposits may grow by 10-12 percent in 2019. However, advances growth to feel the pinch because of higher interest rates and likely increased focus towards government paper in 2019.
JS in its analysis report said that mainly second half of 2018 curtailed the momentum of double-digit growth witnessed during the first half of 2018.
During the same period, M2 growth clocked in at 11 percent YoY, driven by 20 percent YoY higher Net Domestic Assets (NDA). Repo-Borrowings, much utilized during 2017, became less popular during 2018 as it declined by 39 percent YoY.
Analysts at JS believed that this was on account of banks opting to mature investments that were parked against the Repo Borrowings. With single-digit deposit growth and low Repo- Borrowings, sector's asset base growth limited to 5 percent YoY.
Funds were broadly deployed towards lending as Advances increased by 21 percent YoY to Rs7.888 trillion in 2018, reporting the highest growth since 2005.
Private sector credit growth increased by 18 percent YoY, led by 15 percent YoY growth witnessed by conventional lending contributing 80 percent to the private sector credit growth; however, Islamic Banks and Branches also witnessed a robust growth of 25 percent YoY.
On the other hand, investments, declined by 11 percent YoY to Rs7.583 trillion. The last the banking sector closed calendar year in negative growth in investments was in 2008.
During 2018, outstanding Net Government Budgetary Borrowings from banks declined by 16 percent YoY, as the government turned to the State Bank of Pakistan.
According to JS going forward, slowdown in economic growth and attractive rates offered by other savings avenues such as National Savings Scheme (NSS) will impact deposit growth for 2019, keeping its growth in single digits even after the low base set during 2018.