Fueled by higher remittances and Covid-19-induced lockdowns, banking sector deposits witnessed a sharp double-digit growth of 22% year-on-year (YoY), taking the overall deposit base to Rs19.8 trillion ($124 billion) during fiscal year 2020-21. The growth is the highest in 14 years, stated a report by Topline Securities on Tuesday.

The growth comes after remittances from overseas Pakistanis amounted to a historic high of $29.4 billion during the fiscal year, a 27% year-on-year increase. The growth in FY21 is the highest since FY03.

As per the report, investments of banks have grown by 29% YoY to Rs13.7 trillion ($86 billion) as of Jun 2021. “The excess liquidity is being placed in investments by banks due to muted growth in advances,” said the report.

Islamic Banking Industry: Assets, deposits show double-digit growth

The investments to Deposit Ratio (IDR) has increased from 66% in Jun-2020 to 69% in June-2021 but is down from 70% in Mar-2021. Advances to Deposit Ratio (ADR) has declined from 51% in Jun-2020 and 48% in Mar-2021 to 45% in Jun-2021. Topline said that it expects ADR to improve going forward as the government has imposed a tax on banks which fail to meet the minimum threshold of 50% ADR and as economic activity picks up.

Total provisions against advances stood at Rs629 billion ($3.9 billion) and remained unchanged on a YoY and QoQ basis, despite overall concerns of a sharp spike in Non Performing Loans (NPLs) due to Covid-19 linked deterioration in the financial health of corporates.

Going forward, we expect average deposit growth of 15% over 2021-23 compared to last 10-Year average growth of 13%.