KARACHI: Deposits in the banking system amounted to Rs9.4 trillion at the end of 2015, up 11.9% from the beginning of the year.

According to the latest data released by the State Bank of Pakistan (SBP), the year-on-year rise in deposits in 2015 was slightly higher than the increase in the preceding calendar year.

Analysts say the rise in deposits occurred because of an increase in the currency in circulation last year.

“We attribute this to higher broad money (M2) growth in 2015, which clocked up at 11% versus 10% in 2014,” said Topline Securities research analyst Umair Naseer. The average growth in M2, which includes currency in circulation as well as total demand and time deposits, has been 13% annually for the last five years.

Many observers expected the deposit base to shrink at the outset of the current fiscal year in July 2015. Their concerns were based on the negative impact of the imposition of a withholding tax on cash withdrawals aimed at increasing the number of income tax return filers.

The government had initially imposed a 0.6% tax on every cash withdrawal of more than Rs50,000 a day by a non-filer of income tax return. The withholding tax is still effective, although its rate has been reduced to 0.3% until the end of the current month.

The breakdown of the total deposits shows personal deposits grew faster than the overall deposit base in 2015. Personal deposits amounted to Rs4.7 trillion at the end of December, up 13.7% from a year ago.

Within the personal deposits, SBP data shows deposits maintained by salaried people grew 18.5% while those of self-employed people rose 10.9% year on year.

Loans situation

As for loans extended to the private sector, SBP data for the first 11 months of 2015 shows they amounted to Rs3.4 trillion, up 5.4% from the outstanding position at the end of November 2014.

Analysts believe the increase in loans extended to the private sector last year was less than sufficient. Loans to the private sector, which include businesses as well as households, play a key role in economic development and help expand the national output.

According to Naseer, slow credit growth in 2015 should be attributed to lower working capital requirements by companies amid falling commodity prices, low aggregate demand and below-average performance of the textile sector, which happens to be the largest private-sector borrower.

However, he expressed his optimism about stronger growth in credit in 2016 in view of the China-Pakistan Economic Corridor (CPEC)-related projects. Projects of $28 billion (out of the total of $46 billion) will be completed by 2018 under the CPEC, Naseer said, triggering higher advances growth.

“Our back-of-the-envelop calculation suggests these projects will generate an additional credit demand of $2 billion annually for the next three years, which is equivalent to 5% of the total advances of the industry,” he said.

Quoting banking sector sources, he said the local component of the CPEC-related financing could be 10%-20% of the total planned investment during the next three years. “We now anticipate advances to grow by 10%-12% in 2016.”

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