Banks’ ADR recorded at 47pc as of Nov 15th

KARACHI: The banking sector’s gross Advance-to-Deposit Ratio (ADR) maintained its upward trajectory, reaching 47 percent as of November 15, 2024.

In an effort to avoid additional taxes for falling short of the required ADR, banks are making efforts to enhance lending to customers and this aggressive strategy has resulted in a remarkable surge in the advances.

As per the weekly data, Banking Sector’s Gross ADR ratio continued to rise, reaching 47 percent as of Nov 15, 2024 compared to 39 percent recorded on Sep 27, 2024, Topline Securities reported on Tuesday. A jump of Rs 603 billion was recorded in the advances of the all-commercial banks during the first two weeks of November 2024.According to data released by the State Bank of Pakistan (SBP), the banking sector’s gross advances rose by 4 percent in the first two weeks of November, reaching Rs 14.419 trillion, up from Rs 13.816 trillion.

ADR tax: SBP steps in, FBR must step out

In contrast, the sector’s deposits saw a decline of Rs 47 billion, falling to Rs 30.744 trillion by the second week of November, down from Rs 30.791 trillion at the end of October 2024.

At the current pace, the analysts are expecting that banks are most likely to achieve the 50 percent ADR ratio by end of December 2024 to avoid additional tax.

The federal government has decided to impose incremental tax up to 15 percent on banks, if the ADR remains below 50 percent as on Dec 31, 2024. After one year’s deferment, the additional tax is now set to take effect during this fiscal year (FY25).

Therefore, in order to avoid this additional tax and maintain the high profits, banks are aggressively disbursing the loans to the private sector to achieve the 50 percent ADR target and announced some measures to discourage the large deposits.

In the first week of November, in a move to avoid a potential government-imposed tax, some commercial banks announced imposition of 5-6 percent monthly fee on checking accounts having deposits/balance ranging Rs1 billion to Rs5 billion on the last day of the month aimed to discourage large deposits.

However, the fee was later reversed as SBP granted some relaxations to the banks and officially announced that Minimum Profit Rate requirement will not be applicable on the deposits of financial institutions, public sector enterprises and public limited companies.

Now, conventional banks are no more required to pay or offer a healthy profit rate to these sectors or large depositors. However, Islamic Banking Industry is still waiting for relief in this regard.

Copyright Business Recorder, 2024