KARACHI, Feb 13: Banks have been facing problem in extending loans for long-term projects as the share of short term deposits with banks have increased substantially, said bankers and analysts.
The banks were already finding it difficult to finance long term projects because of very low amount of deposits for long term were available, but the recent trend in the last four years has further aggravated the situation.
“A major share of fixed deposits stayed with short term maturities of less than a year, as depositors are not willing to lock their funds in longer term maturities,” said Salman Jafrey, an analyst at Jahangir Siddiqui.
Fixed deposits of the banking industry started gaining momentum on the back of high yielding deposit schemes offered by few banks on their fixed accounts.
The share of fixed deposits has increased to 19 per cent to Rs460bn as of June 30, 2005 from 16 per cent (Rs329bn) as on June 30, 2004.
However, the banks said that if the trend of short term deposits continues, they would not be able to take long positions and could hardly finance for longer period.
“Most of the banks could hardly provide financing for a maximum period of five years,” said a senior banker. He said that the unavailability of deposits for longer period had been a constant problem for the banking industry and instead of improving the situation went into opposite direction.
The State Bank also failed to get liquidity for longer period as its Pakistan Investment Bonds (PIBs) got poor response from the banks. Banks find themselves unable to buy PIBs of longer tenure.
The State Bank’s annual report showed that the deposits of the banking sector grew by 21 per cent (Rs426bn) to Rs2.4trn during FY05 and the average annual growth rate of banks deposits since FY02 comes to 20 per cent.
The inflow of foreign remittances and higher credit growth in the country were the main reasons for strong growth in deposits in last few years.
Bankers said that the depositors were not fixing their money for longer period in the hope of higher interest rates. The prevailing high inflation of over 8.4 per cent is the reason for their hope for higher interest rates. Though the State Bank in its revised monetary policy reiterated its tight monetary policy but the fast monetary growth could push the inflation and interest rates up in the coming months.
Analysts said that the higher consumer goods demand had also caused a dent to the long term deposits. The saving rates were continuously shrinking for at least four years and this was the period when economy started picking up.
They said banks have earned up to 20 per cent of their profits from consumer financing showing the rapid growth in the sector. This high consumption heated the economy, increased the GDP growth and reduced the saving rates.
The bankers said they were not engaging their liquidity for longer period. However, their investment into the T-bills was rising as it gives them risk free high return of 8.79 per cent per annum.
This return gives them solid profit as the banking spread has widened due to poor return to the depositors. The banking spread crossed nearly 7pc and the average of last six months of 2005 was 7.13pc which was three years’ high.
