Bank deposits grow 9pc to reach Rs5.6tr

The commercial banks’ deposits in the country have registered a growth of 9 percent during Jan-June 2011 to reach Rs5.6 trillion or $65 billion amid strong inflows of workers’ remittances and improving exports target.

The growth has been witnessed after a gap of around three years and is slightly higher than last three-year average growth of 8 percent during the same period, said banking sector experts and added deposit mobilization in Pakistan generally remains higher in first half of the fiscal year compared to the second half.
Where controlled provisioning and higher exposure in government assets has some how supported banks earnings, higher spreads also remains the major earnings trigger for banks. This is evident by recent 1Q2011 earnings, as despite flat growth in advances major banks posted attractive earnings growth of 20 percent. Thus, similar performance is expected in 2Q2011 as well as average banking spread of 7.65 percent (May 2011) is 19bps higher than average of 7.45 percent in 20110.

Experts are of the view that the major concerns for the banks profitability in last few years have been the provisioning issues against their assets. During 1H2011, overall provisioning remained at around Rs26 billion, up 7 percent from 2H2010. However, some thing to cheer is the fact that it is significantly lower than 1H2010 level of Rs47 billion, down 45 percent. Where stringent lending policy towards private sector contributed its due hand, improving profitability for textile sector (largest borrower) also remained the major factor behind controlled provisioning.

“Supply side bottle necks, high interest rates and lower inventors’ confidence remained at the heart of lower appetite for bank credit”, stated Farhan Mahmood, a financial expert, in his report. He said that is why local commercial banks continued their stringent and risk-averse strategy for fresh loans and thus banks advances grew by only 0.3 percent in 1H2011. This is the third consecutive year when advances remained almost flat during the 1H.