KARACHI: The banking sector in Pakistan which has, so far, escaped liquidity crisis is facing stagnant deposit growth for the last two months, signifying the potential risk behind the scene.
What happened to the global banking system during last one year was almost irrelevant to banking industry in Pakistan as no bank failed.
However, latest State Bank reports about the deposit and credit growth were worrisome for the banking sector and economy.
According to State Bank’s latest report, for the last couple of months deposit growth of the scheduled banks remained stagnant. In fact, the deposit growth has been falling since the beginning of the new banking year.
The State Bank reported that the total deposits of banks were Rs3,874 billion in March 2009 which remained unchanged in April. The deposits fell from Rs3,897 billion in February.
The most significant part was that about 90 per cent deposits have been kept for less than one year despite several incentives being provided to banks by the State Bank.
Banking experts said the stagnant deposit growth with poor credit growth for private sector, reflected the depressing situation for banking in the country.
The first quarterly report of the banking sector showed that banks’ profits fell 24 per cent. Non-performing loans (NPLs) of the banks crossed over Rs100 billion setting a new record.
The tumbling economic growth added more troubles to banking industry as failure of business and companies are adding to the mounting NPLs.
Reports suggest that the government plans to help the sinking companies with the help of Securities and Exchange Commission of Pakistan. However, no official announcement has been made.
Banking experts said it was the shadow of economic slump in the country which engulfed the banking system.
The IMF predicted on Wednesday that the Asian countries would face longer recessionary periods than developed economies which is alarming for countries, like Pakistan.
The reasons cited for stagnant deposit growth are high inflation and poor returns to depositors which encourages potential depositors to spend money instead of allowing it to devalue by putting into banks.
Banks are generally offering in the range of 10-16 per cent for longer term deposits but it was still negative return in the presence of over 19 per cent main inflation.
It was also noted that for the last six months banks were not marketing their products aggressively while new banking products were rare during this period.
An analyst said banks were not advertising their products through media or have minimised their advertising campaigns in the wake of declining profits.
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