KARACHI, Oct 25: Banks had to offer a slightly higher return on fresh deposits raised in August to keep the deposits base growing while they went on lending at higher rates. Weighted average return on bank deposits mobilized in August crawled up to 1.51 per cent from 1.20 per cent in July , according to the data released by the State Bank. But this 31 basis points increase in the average deposit rate made no impact on the average return on overall bank deposits that remained unchanged in August at the July 2004 level of 1.20 per cent.

The average return on overall bank deposits remained unchanged in August despite having fallen on fresh deposits raised during that month was that the amount of fresh deposits as compared to the overall deposits was just too low. In August, banks mobilised Rs8.5 billion deposits, only 0.4 per cent of the total deposits of Rs2060 billion at the end of that month.

Weighted average return on bank deposits went up by 31bps in August in response to a 45bps rise in weighted average lending rate of all the banks combined. The average lending rate on fresh credit disbursed in August inched up to 5.08 per cent from 4.63 per cent in July.

Though lower than the increase in the average lending rate, the increase in average deposit rate on fresh deposits in August is not too bad, though there was space for the banks to make a still larger increase in deposit rate.

In August total advances of all the banks combined rose by Rs18 billion to Rs1365bn. Since the weighted average lending rate in August rose by 45bps, banks generated an additional interest income of more than Rs8 billion on the Rs18bn fresh advances.

On the other hand, since the weighted average deposit rate rose by 31bps in August on additional deposits of Rs8.5 billion, banks' additional cost of mobilizing these deposits stood at Rs2.65 billion. A huge gap between Rs8 billion additional interest income and an additional Rs2.65 billion cost of deposits suggests that banks had enough room to increase fresh deposit rates by a higher margin in August 2004.

The SBP data show that the combined average deposit rate of public sector banks rose to 1.71 per cent on fresh deposits raised in August from 1.32 per cent in July. But their average deposit rate on overall deposits rather fell to 1.16 per cent in August from 1.20 per cent in July.

"This means that fresh deposits raised by the public sector banks in August were only a friction of the overall deposits," a senior executive of National Bank explained to Dawn.

Public sector commercial banks include National Bank, First Women Bank, the Bank of Khyber and the Bank of Punjab.

The average return on fresh deposits raised by private banks in August went up to 1.46 per cent from 1.16 per cent in July. The list of private banks includes, among others, four large privatized banks i.e. Habib Bank, United Bank, Muslim Commercial Bank and Allied Bank.

The average return on fresh deposits mobilized by foreign banks in August also rose to 1.54 per cent from 1.25 per cent in July.

But unlike the other groups of banks, specialised banks did not have to increase the return on fresh deposits in August. They rather slashed it to 2.54 per cent from 4.19 per cent. The list of specialised banks includes Zarai Taraqiati (Agricultural Development) Bank Ltd.; Industrial Development Bank of Pakistan and the Punjab Provincial Cooperative Bank Ltd.