KARACHI: Bank deposits continued to grow and jumped to an all-time high of Rs25.6 trillion by the end of June 2023, the annual report of the Deposit Protection Corporation (DPC) showed on Friday.

Correspondingly, the volume of eligible deposits for protection under the DPC scheme recorded a net increase of Rs1.8tr to Rs14tr, which is 55 of the total bank deposits by the end of June.

“However, the year-on-year trend revealed a slowdown in the pace of deposit mobilisation during FY23 as compared to FY22,” said the report. The DPC is a subsidiary of the State Bank of Pakistan (SBP) which provides insurance to the depositors.

As of June 30, 98.9 per cent of total depositors of conventional banking and 98.7pc of Islamic banking are eligible for deposit protection in case of a bank failure. In terms of value, 52pc of conventional banking and 63pc of Islamic banking deposits are eligible for deposit protection, said the report.

A little over half of them are eligible for DPC’s protection scheme

“The growth of deposits decelerated to 12pc during FY23 from 15pc in the preceding year,” said the report.

The increase in total deposits can be attributed to factors such as the higher rate of return offered in the wake of a tighter monetary policy stance and the expansion of banks’ branch network, it added.

“While the deceleration of deposit mobilisation may be accredited to macroeconomic uncertainty, including inflationary pressures, a slowdown in the inflow of foreign remittances by Pakistani Diaspora could be another factor for the deposit deceleration,” said the report.

The annual report covered a wide range of financial sector. It said that recently owing to insufficient capital and liquidity, the federal government approved a winding down plan for the SME Bank as proposed by the SBP to ensure that no depositor is adversely affected by the closure of the bank.

In terms of SBP’s proposed plan, a payout to all the depositors of SME Bank was initiated to maintain depositors’ confidence in the banking system. The SBP also issued a notification in this regard on May 10 declaring SME Bank as a failed institution under Section 21(1) (a) of the Deposit Protection Corporation Act 2016, effective from March 27, 2023.

Consequently, the DPC also made a public announcement informing eligible depositors of SME Bank to approach the bank to receive their due balances.

“The payouts are made based on claims received from SME Bank i.e. as and when a customer approaches the bank for withdrawal, the outstanding balance in his/her account is paid out by SME Bank and the protected deposit amount i.e., up to Rs500,000, is claimed from DPC which is subsequently reimbursed to SME Bank after due verification,” said the report.

The report said that while the failure of a small bank can be distressing for its depositors, the presence of efficient and well-functioning deposit insurance serves as a financial safety net.

Published in Dawn, December 2nd, 2023