COMMERCIAL BANKS CONSOLIDATING THEIR POSITIONS

Banking sector deposits have increased by 15.7%

By SHABBIR H. KAZMI
Oct 18 - 24, 2004

If one has to look at the strength or any weakness of the banking sector of Pakistan there are three possible yardsticks: deposits, advances and investments. Though, there may a number of factors affecting these parameters, a closer look at each may give fairly good idea of the overall performance of the sector. The immediate response to first nine months data gives an impression that the sector is gaining strength.

There were growing concerns that funds may be moving away from the banks to other sectors. However, the growing deposits clearly negate this hypothesis. Total deposits have grown up from Rs 1,796.7 billion in January to Rs 2,065.7 billion by September end this year. However, the bankers say, "There may be a significant growth in deposits, but the fact is most of these fall in less than one year category. Depositors are not willing to tie up their funds for longer duration. As against there banks are keen in raising deposits as much as possible due to rising interest rates. It has become evident that the central bank is following crawling increase policy. It is also evident from the gradual increase in T-Bills yield. Since the beginning of current financial year weighted average yield on T-Bills has gone up by 93 basis points.

According to a report from Elixir Securities Pakistan, "Banking sector deposits have increased by 15.7% from the beginning of this calendar year till the last week of September. This has also led to a 19.7% growth in advances over the same period and helped in improving the Advances to Deposits Ratio (ADR) to 60%." The growth in advances can be attributed to a number of factors. These include higher disbursement against agriculture loans and trade finance. While the restriction on lending against open plots may be considered a deflator, the growing disbursement for purchase of cotton has the potential to take advances to new highs.

Despite a 3.5% increase in banks' investments from the beginning of the year, the latest trend is of a declining nature. During the last two months (Aug-Sept) investments have declined by 4% to Rs 771 billion mainly due to a 6.8% decline in Central Government securities and 3.5% decline in treasure bills. This is a very promising sign for banks as our major concern for banks, their high proportion in investments, is beginning to subside. However, we still believe that the current levels of t-bills as a percentage of total investments of 54.9%, is still too high.

The Advances to Deposit Ratio (ADR) has increased to 60% as of end of September as compared to 58.8% in the beginning of CY04. This is primarily due to a 15.7% growth in deposits since the beginning of the year that has spurred advances to grow by 19.7% over the same period. Advances that currently stand at Rs 1,296 billion are at their highest levels depicting strong credit disbursements.

Going forward, we expect the coming two months to witness further advances growth as cotton financing would pick up pace. However, compared to last year, cotton-financing credit may be lower in terms of monetary value due to lower cotton price vis-a-vis last year. Another factor is that banks have been off loading part of their investment in equities to comply with the State Bank regulations. One can not rule out further decline in investment of the banks as they seem to be busy in reconstructing their investment portfolio.

An interesting point is that despite a 3.5% increase in investments from the beginning of the year, investments over the last two months have declined by 4% mainly on account of a 6.8% decline in central government securities and 3.5% decline in treasury bills.

CUSTOMERS DEPOSITS OF SCHEDULED BANK (STOCK)

AS ON LAST WEEK OF

FY20
(Rs.Mln)

FY03
(Rs Mln)

FY04
(Rs Mln)

January

1,305,117

1,510,429

1,796,714

February

1,310,323

1,537,662

1,838,427

March

1,327,468

1,577,430

1,862,563

April

1,336,990

1,571,620

1,900,657

May

1,356,196

1,618,434

1,949,240

June

1,413,406

1,688,486

1,992,932

July

1,434,944

1,686,338

2,051,596

August

1,456,681

1,715,099

2,059,984

September

1,474,047

1,734,434

2,065,766

October

1,471,107

1,698,005

.

November

1,496,758

1,760,487

.

December

1,517,162

1,781,817

.

Source: Weekly Statement of Position which covers domestic operations of banks.

TOTAL ADVANCES OF SCHEDULED BANK (STOCK)

AS ON LAST WEEK OF

FY02
(Rs Mln)

FY03
(Rs Mln)

FY04
(Rs Mln)

January

988,104

1,000,597

1,220,543

February

977,317

985,552

1,231,926

March

960,988

1,002,414

1,211,241

April

950,661

1,000,446

1,247,372

May

942,129

1,035,258

1,281,062

June

970,112

1,069,259

1,324,522

July

947,283

1,042,664

1,347,090

August

932,059

1,043,420

1,364,855

September

930,871

1,051,184

1,396,430

October

947,191

1,097,554

.

November

979,420

1,149,157

.

December

1,000,331

1,169,986

.

Source: Weekly Statement of Position which covers domestic operations of banks.

 


 

AS ON LAST WEEK OF

FY02
(Rs Mln)

FY03
(Rs Mln)

FY04
(Rs Mln)

January

328,881

638,583

732,008

February

362,842

663,316

743,778

March

399,657

688,138

757,615

April

390,813

691,313

770,030

May

432,510

694,598

773,361

June

471,020

723,626

712,215

July

536,300

764,572

780,821

August

559,542

781,718

776,509

September

601,577

804,115

771,107

October

601,044

771,080

.

November

605,832

727,910

.

December

625,201

745,291

.

Source: Weekly Statement of Position which covers domestic operations of banks.