Banking Industry’s Deposits Surge to Rs. 14.8 Trillion

Banking Industry continued to receive handsome inflows of deposits that have surged to Rs. 14.8 trillion and are likely to touch Rs. 15 trillion within the next month.

According to the State Bank of Pakistan (SBP), the banking industry recorded an addition of Rs. 142 billion, on the account of deposits thanks to higher interest rates which provided an opportunity for banks to attract customers with higher profit rates.

Some banks cashed in on the opportunity and offer profit rates of up to 14 percent on different saving products mainly Term Deposit Certificates for a period of one to five years. Besides the certificate, banks—Islamic and conventional—received healthy deposits in non-remunerative accounts from new customers and account holders including corporations and various associations which also added inflows in their deposits.

Among these banks, some have stopped their high-profit rate Term Deposit Certificate ahead of the announcement of the new policy rates, which is expected to see a cut. Besides, microfinance banks also mobilized deposits from investors and customers in 2020 mainly in February this year.

Comparing February 2019 to February 2020, the entire industry added over Rs. 2 trillion in deposits of the banking industry in spite of the fact that various saving products such as National Saving Certificate (NSC), prize bonds, and the mutual fund also allured customers with handsome profit rates.

Deposits Generate Handsome Income for the Govt

The increasing deposits are not only good for banks but it generates handsome revenues for the government as well.

According to FBR, the collection of withholding tax from profit on banks’ deposits surged by 185 percent during the first eight months 2019-2020 due to increasing investment in the banks’ saving/deposit products.

The withholding tax collection from a profit on deposits increased to Rs. 43.75 billion during the first eight months of the current fiscal year as compared with Rs. 15.32 billion in the same period of the last fiscal year.

Withholding tax is collected on a profit on deposit amounts of customers under Section 151(1)(b).

Accordingly, every banking company is required to collect 10 percent of the gross yield or profit paid up to Rs. 500,000 or 15 percent of the gross yield or profit paid exceeding amount Rs. 500,000 at the time the profit on debt is credited to the account of the recipient or is actually paid, whichever is earlier.

It is mandatory for the banks to collect double the amount of withholding tax from persons that are receiving profit on debt but are not on the Active Taxpayers List (ATL).

Advances and Investments

Banks’ advances to borrower increased at a snail’s pace mainly because of high markup rates. They surged to Rs. 8.212 trillion after the addition of Rs. 48 billion in February from July. The slow growth in the advances was recorded due to the higher interest rates offered by banks.

It is likely that the advances of banks to the private sector will increase after a decline in policy rates is announced by the central bank tomorrow.

Bank investments showed a staggering growth, increasing to Rs. 8.72 trillion with the addition of Rs. 359 billion. Banks park their investment in the government papers in T-Bills and Pakistan Investment Bonds, which offers them a safe way of making margins without doing much work.

The investment of the banks in the government papers and various securities instruments such as Sukuk will continue in the future despite an expected rate cut in the new monetary policy. The investment portfolio of the banking industry recorded its peak level in September last year at Rs. 9.2 trillion.