Deposits of the banking sector have continued their upward trajectory, clocking in at PKR 20.97trn as at Dec’21, registering a 17% YoY jump while rising by a 7% MoM, an all time high. With SBP

rising CRR by 1% in Nov’21 along with 275bps increase in policy rate, it was expected that banks would focus on improving their low cost deposit portfolio.

Broad Money (M2) has seen a decent growth in tandem, posting a ~12% YoY growth during Dec’21 while Currency in Circulation (CiC) is up 14.7% YoY. Pertinently, CiC/M2 has remained almost stagnant at ~29% compared to SPLY.

Meanwhile credit demand across the country has picked up. Dec’21 showed a 19% YoY jump in Gross Advances to settle at PKR 10.2trn, a YoY growth last witnessed in Feb’19. This uptick can be attributable to measures taken by SBP/gov’t to encourage credit offtake, such as housing and construction finance targets (Mera Pakistan Mera Ghar) and additional tax rate ranging between

2.5-5% in case of ADR below 50%. Private sector credit as of Dec’21 stood at PKR 8.3trn, posting a 16% YoY jump.

Investments continued to grow at 22% YoY to clock in at PKR 14.1trn amid demand for gov’t securities. With interest rates hikes witnessed in last quarter of CY21 and expected to slightly increase further in 1HCY22 (although the quantum of hike will be less than previous ones), banks have aggressively built positions towards the shorter end of the yield curve.

Gross ADR ratio has settled at 48.4% as at Dec’21 against 47.5% SPLY and 49.0% last month, while IDR stands at 67.4% as at Dec’21 against 64.6% SPLY and 68.9% last month. Banks have favoured risk-free debt instruments to expand their asset base.

Moreover, banking sector spreads clocked in at 4.18% in Nov’21 on outstanding deposits (4.83% on fresh deposits).

Courtesy – AHL