There seems to be a growing euphoria about improved macroeconomic indicators, higher corporate earnings and healthier banking sector balance sheets in the last quarter. But the consolidated balance sheet of commercial banks is revealing a different picture.
Central bank data show that deposit growth is still subdued; the advance-to-deposit ratio is sliding with most of incremental deposits being deployed in investments while provisions against non-performing loans are rising.
Tight liquidity in the system has hindered the growth in deposits, which increased by a mere 1 percent in the outgoing quarter (by Sep 26) versus 6.3 percent hike in the quarter before. This has dented private sector credit off take more than the government-borrowing from SBP has, as investment-to-deposit ratio increased by 341 basis points in the last quarter to stand at 36 percent. The argument is strengthened by the fact that government borrowings from scheduled banks in the third quarter CY09 (till Sep 19) jumped by Rs75 billion equalling 1.8 percent of deposits.
Although, monetary aggregates for the last ten days of September have not been released yet, one can safely estimate that private borrowers will be pressured further, despite the foreign flows pumping in the equity market This is because the government would have likely borrowed more from scheduled banks to be able to retire Rs85 billion worth of debt it owes to the State Bank.
Even the ADR has declined by 114 bps to 73 percent. But of more concern and contrary to general perception, the bad loans seem to continue their northward movement; provisioning against non-performers rose by 51 bps to 8.1 percent in the last quarter. This coupled with the persistent decline in credit to private sector (down Rs69bn) casts serious doubts on the economic recovery claimed by certain corners.
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