KARACHI, Aug 3: Bank deposits have substantially increased during the last fiscal which resulted in the decline of advance to deposit ratio, indicating presence of excess liquidity in the system.

Bankers’ calculation shows that shifting of 30 per cent load of export financing towards commercial banks would only result in an outflow of Rs42 billion from the system which is not significant and the liquidity will continue to haunt the State Bank’s monetary managers.

The central bank held excess liquidity and food prices real reasons for higher headline inflation. It says the foreign inflows created excess money supply and pushed reserve money abnormally high.

Bankers said soaring of bank deposits was the direct impact of foreign flows.

Analysts said bank deposits increased by 19 per cent during last fiscal, final figures are yet to appear.

The rise in bank deposits did not match the credit outflows towards private sector which resulted in the decline of advance to deposit ratio.

“The advance to deposit ratio declined to 68 per cent compared to 72 per cent last year,” said Mohammad Imran Khan, head of research at a First Capital Equity.

The decline to advances showed that banks could use the available liquidity. After increase in discount rate, banks would find it more difficult to use the liquidity.

“There is no chance that banks will increase their lending rate.

If lending rate is increased to any significant level, the borrowing will decline, resulting in dearth of liquidity which is again inflationary,” said another analyst.

Bankers said not only the industrial sector reduced its borrowing last year, corporate sector was also willing to borrow from abroad.

The State Bank said in its monetary policy that some companies of corporate sector met their liquidity requirement by borrowings from abroad.

The SBP this week issued a circular which helps the corporate sector to borrow from abroad more easily. The borrowing from the international market is cheaper than borrowing through a Pakistani bank.

“If more corporate companies go for borrowings from abroad, it will be counter-productive for the banking sector in Pakistan,” said the analyst, adding it would again result in monetary inflation.

The SBP increased the discount rate by 0.5 per cent to 10 per cent which allows banks to increase their lending rates, but market experts said banks would not go for a further hike.

The SBP’s monetary policy paper held the expansionary fiscal policy of the government responsible for monetary growth and asked to retire debt of the SBP.

It further said the fiscal gap of Rs399 billion in 2007-08 would increase monetary pressure and make it more complicated for the State Bank to manage it.