Total deposits of the banking industry crossed Rs 10 trillion mark as of June 2016, which is 10 per cent higher year-on-year compared to Rs 9.14 trillion as of June 2015.
This growth, however, is at a seven year lower and is much lower compared to an average 15 per cent YoY increase recorded during fiscal years 2010-15, which can be attributed to WHT (higher for non-filers) on banking transactions. The individual persons (non-filers) are doing business on cash because of the withholding tax.
Owing to the imposition of the withholding tax on all kinds of banking transactions, the deposits of the banking industry have been declining since July 2015.
On the other hand, gross advances of scheduled banks grew by 12 per cent year-on-year to reach Rs 5.11 trillion. The growth was impressive, as it clocked in at an eight year high and higher than the average growth of 7 per cent during fiscal years 2009-15.
This can be attributed to multi-decade low interest rates as a result of loose monetary policy by the Central Bank as well as uptick in project financing in the country (especially power projects).
Analysts expect banking sector’s profitability to post a decline of 12 per cent YoY in 2016 as the banking sector is expected to witness a 250-300bps decline in yields on 24 per cent of its interest earning assets given the maturity of hefty long term government papers.
It also remains in line with relatively subdued M2 growth of 11.69 per cent during 2015-16, which too fell short of average 14 per cent growth during the same period. Similarly, total deposits of scheduled banks grew by 8 per cent in the first half 2016, which is also lower than the average 10 per cent deposit growth over the last seven years.
The assets base of the banking sector has registered an increase of 1 per cent.
This growth was mainly contributed by banks’ investment in government securities (mostly Pakistan Investment Bonds) as overall advances observed seasonal decline owing to net retirements against commodity financing and small and medium enterprises (SMEs) financing. However, the seasonal contraction in gross advances (0.6 per cent) was less than the average decline of 1.2 per cent during the same quarter of the last two years due to positive growth in advances to private sector (1.0 per cent) – mainly fixed investment advances, SBP said.
The deposits – sensitive to seasonal fall in overall advances – slightly declined by 0.6 per cent during March 2016 with dip in current deposits and fixed deposits; however, saving deposits increased by 3.6 per cent. Consequently, the borrowings from financial institutions (mostly the SBP) provided the funding necessary for asset expansion, the central bank said.
The banking sector growth was reflected through absorption of new human resources and expansion in the banking infrastructure including ATMs and branches.
Despite the expansion in assets, the earnings of non-banking financial institutions (NBFIs) are declining, a recent review of the sector released by the SBP shows.
NBFIs are non-banking intermediaries that offer services like investment finance, leasing, housing finance, venture capital investment, investment advisory, asset management, modaraba and development finance.
The asset size of the NBFI industry at the end of fiscal year 2015 was Rs 738 billion, up 10.1 per cent from a year ago. But the expansion in the balance sheets of NBFIs did not translate into earnings growth.
The sector posted an after-tax profit of Rs 8 billion in fiscal year 2016, down 12 per cent from the preceding year.