KARACHI: Bank deposits increased by 20 per cent year-on-year in October reflecting high liquidity in the banking system and low advances by the banks.

According to the latest data issued by the State Bank on Thursday, banking sector deposits reached at Rs16.664 trillion in October compared to Rs13.912tr in the same month of the previous year.

Bankers and analysts said the main reason for the growth in the deposits was Covid-19 pandemic which suppressed spending and money was deposited in the banks.

Banks’ deposits in the first 10 months of the calendar year 2020 have so far grown by 14pc which was the highest in thirteen years.

“This year, the coronavirus pandemic did not allow people to spend their money as they did not travel within the country or go abroad. There were no Hajj or Umrah tours nor was there much spending on shopping and restaurants,” said Smaiullah Tariq, Head of Research at Pak-Kuwait Investment.

“All the money which could have possibly been spent was deposited in the banks. Meanwhile, the banks could not make advances which increased the deposits size,” Tariq added.

The SBP data supported the argument that salaried class added 14pc in the growth in banks; reflecting that spending was not possible due to Covid-19, he said.

However, increase in money supply also helped boost deposits. According to the SBP data, money supply during the year witnessed a growth of 17pc. In fiscal year FY20, monetary expansion was Rs3.1tr compared to Rs1.8tr growth noted a year before.

Bankers said that during the ongoing Covid-19 pandemic, economic activities were at the lowest level which did not allow the banks to increase advances.

“At the same time, banks were cautious to extend loans due to higher uncertainty on the economic front that emerged from the pandemic,” said a banker.

Banking investments witnessed a growth of 38pc in October on yoy basis. The investment to deposit ratio (IDR) rose to 66pc. At the same time, the advance to deposit ratio (ADR) fell from 58pc to 49pc in October yoy basis, reflecting slow economic activity.

The SBP data showed that private sector during the first quarter of the fiscal FY21 retired its debts — amounting to Rs96.5bn — instead of borrowing.

Published in Dawn, November 6th, 2020