KARACHI, Aug 7: More than 86 per cent bank deposits have been kept for less than one year, showing poor capability of the banks to lend for a longer period. Why depositors keep money for such a short tenure may have more than one reason, but the situation was so worst that the State Bank had decided to help banks to build their reserves with long-term deposits.

Official figures showed that only 14 per cent deposits were meant for more than one-year term despite attractive returns now being offered by banks on deposits for longer periods.

The short-term money, which is 86 per cent of the total deposits, did not allow banks to invest in any long-term projects or make advances for longer period.

The State Bank in its latest monetary policy announced on July 31 said the cash reserve requirement (CRR) on bank deposits of over one-year period would be zero.

The decision was taken to encourage banks to make effort to attract deposits for longer period.

Meanwhile, to discourage the misuse of this advantage the SBP had also taken precautionary measures. The central bank on Monday announced that in the event of premature withdrawals of time deposits of over one year, banks would be required to maintain an additional CRR equivalent to 7pc of the amount of such premature withdrawal.

To build reserves, some banks have started offering more than 10 per cent return on time deposits which is quite high in the wake of average low return of about four to 4.5 per cent.

Banking spread had widened to 7.35 per cent during the 2006-07, showing that banks were still keeping most of the profit.

The high banking spread and low return had been a major reason for short-term deposit accumulation. Banks have been successful to raise their deposits by 19 per cent last fiscal but still failed to keep the deposits for longer period.

Analysts said another reason for short-term deposit was the high inflation which compelled depositors to remain liquid for meeting their urgent needs.

“Some depositors think that spending money is better than to get negative return as the high inflation devalues the purchasing power of their money each year,” said an analyst.

Analyst said that the short-term behavior of the depositors could not be changed immediately but the long-term economic stability with reasonably low inflation and high return could change the deposit pattern.

They also said that the re-pricing of deposits would reduce the banking spread as the banks may not afford to further increase the lending rates.