April 03, 2007	Tuesday	Rabi-ul-Awwal 14, 1428

KARACHI, April 2: The booming banking sector is still unable to revive the trust of the savers as 90 per cent depositors keep their money for less than three months. This situation has made banks not only handicap to invest for longer period and project financing, but has also restricted them to have short-term vision and strategy for banking industry despite earning record profits for the last three consecutive years.

Though the profitability is on the rise, the situation is not stable for the banking sector rather it is ‘liquid’ as door for quick outflow from the system is widely open.

Analysts and bankers said the main cause for this problem was negative return to depositors despite the fact that banks were making huge profits from their money.

A detail analysis showed that around 71 per cent interest bearing liabilities of the banking sector were placed in a maturity of less than three months.

Due to higher weight of deposits in interest bearing liabilities that is 90 per cent, deposits of the sector also represents the same trend.Banks’ failure to attract fresh deposits for higher period is the direct outcome of the negative return to depositors. In the wake of average 8 per cent inflation, real return to depositors is negative 3 to 5 per cent instead of getting 2 to 3 per cent above the inflation rate.

The slab of three months to one year occupies 15pc liability of the sector while the remaining 14pc are equally distributed between 1-5 years and more than 5 years maturity.

“About 36 per cent earning assets of the banking sector have a maturity of less than three months with 35 per cent maturing between 3-12 months whereas 21 per cent and 8 per cent assets are of the maturity of 1-5 years and over five years respectively,” said Muhammad Imran, head of research at First Capital Equities.

“Though it’s a long time problem but not favourable for the banking as it limits the banks not to lend for a longer period which practically hurts the economy for not getting money for long term project financing,” he said.

He said advances and investments have a share of 66pc and 23 per cent respectively in earning assets.

Bankers said that weak economy of middle class was the other major reason for short-term deposits. The depositors cannot afford to engage their money for a longer period.

“I believe the situation is improving particularly the foreign banks have succeeded to attract deposits for longer period,” said a banker representing one of the biggest foreign bank.

Both bankers and analysts were of the view that depositors were not ready to lose chance to earn more if interest rate goes higher and at the same time, they do not want to loose in case interest rates fall.

“The short-term deposits protect the depositors in both ways,” said the banker.

The State Bank has been assuring for real positive returns to depositors and showed willingness to take action to force the banks to offer higher return but nothing has happened.

“The State Bank protects banks and not depositors,” commented a seasoned banker.