STAGNANCY IN GROWTH OF DEPOSITS

RISING NPLS IS AN ISSUE

KANWAL SALEEM
Dec 21 - 27, 2009

Although Pakistan's banking sector is termed stable and growth-oriented, it is facing issues of rising non-performing loans (NPLs) and stagnant deposit growth.

The banking sector in Pakistan, which escaped liquidity crisis of the global financial system, has been facing stagnant deposit growth for the last 3-4 months.

According to State Bank of Pakistan's latest report, for the last couple of months deposit growth of the scheduled banks remained stagnant. In fact, the deposit growth has been falling since the beginning of new banking year. It said total deposits of banks were Rs3874 billion in March 2009 that remained unchanged in April. The deposits fell from Rs3897 billion in February. The most significant part was that about 90 per cent deposits were kept for less than one year despite several incentives being provided to banks by the State bank.

"One of the reasons for stagnant deposit growth was high inflation and poor returns to depositors, which encouraged potential depositors to spend money instead of parking them in to banks," said bankers.

Banks offered return on deposits in the range of 10-16 per cent for longer term deposits, but it was still negative return in given the 19 percent main inflation, they added.

Banks are still cautious while lending because of rising non-performing loans and slow economic growth.

However, the worst is over in Pakistan while recovery process has also begun in developed economies.

The tumbling economic growth created more troubles for the banking industry as defaults on loans' repayment of companies and individuals caused growth in NPLs.

What happened to the global banking system during recent past is almost irrelevant to the banking industry in Pakistan as no bank in the country collapsed due to this.

Barclays, which is the second biggest bank of Britain, entered Pakistan only last year and rapidly established 14 branches in major cities countrywide.

Barclays has invested heavily and would continue to invest in expansion, hiring more people, and introducing new products.

The bank sees Pakistan as one of the best performers in the wake of the global financial crisis that undermined assets of many global leading financial institutions and made financial giants in the US and European countries almost bankrupt.

CORE BANKING SYSTEM

National Bank of Pakistan (NBP) is all set to introduce "core banking system" in its branches to facilitate its valued customers. "We are introducing core banking system according to the best international banking practices in our branches to smoothen financial transactions through use of technologies," a spokesman of the bank said.

According to him, after the implementation of the system, the bank would be able to resolve the banking related problems immediately. The core banking system will be in operation by 2010 and an agreement in this regard with an international firm has already been signed.

Banking experts said, "Pakistani banking industry has huge potential to grow." The sector is very sound and has already shown its resilience during the global financial crisis, they added.

Talking about Dubai debt crisis that is almost over now with the rescue of Dubai World by the Abu Dhabi government, they said, "We have well regulated financial system and Dubai debt crisis will have hardly any direct impact on our banking system".

"There is no reason for any bad impact of Dubai crash on Pakistani banks," a senior banker told this scribe. He said only a few Pakistani banks had exposure to Dubai's financial market. He said that United Bank Limited and Habib Bank Limited have stakes as UBL is operating in Dubai. UBL has already announced that its business will not hurt because of the crash.

UBL in a statement has announced that its UAE's balance sheet and operations are healthy and robust, and are not challenged by the current financial crisis in the emirate.

We are expecting that the Dubai debt crisis will not affect our financial sector until it does not jump in to other UAE countries and Gulf region, commented a Pakistani banker.