Depositors not keeping money for long-term
KARACHI, Oct 20: Trust deficit and uncertainty rises on banking industry as depositors find it suitable to park their liquidity for less than six months giving banks no chance for long-term lending.
During the last five years banking in Pakistan has changed its shape, as banks have become investors instead of lenders, but vulnerability has also increased as banks are dependent largely on lending to the government instead of the private sector.
The State Bank’s recently issued reports which showed volume of fixed deposits have been on the rise since 2008 but most of the money was kept for less than six months, reflecting uncertainty among the depositors and their minimum trust on banking.
The SBP report said the amount fixed for less than six months were Rs546 billion in June 2008 which rose to Rs694 billion in December 2011.
The amount kept for less than one year but above six months did not see much change during the five years as it rose to Rs226 billion from Rs191 billion in June 2008.
However, the amount fixed for over one year and less than 2 years witnessed significant increased and rose to Rs662 billion from Rs254 billion in June 2008.
The State Bank reported that the fixed deposits for 3, 4 and 5 years witnessed a fall, which bankers said was disastrous for the banking sector as banks are unable to make advances for longer periods.
Banks have failed miserably to improve their performance by increasing the long term deposits for which even the State Bank provides special incentives.
Bankers said project lending and housing sector lending has almost disappeared due to lack of trust of depositors on banks.
The government is now the largest borrower from the banking industry as banks’ advances to private sector reduced to a meager 0.7 per cent over the previous four years.
Analysts said it also reflected that the depositors are unable to fix their money for longer period because of rising prices, which forces them to remain liquid.
The State Bank report showed the fixed deposits for 5 years and above have increased but the volume is not as large as the amount involved in deposits for less than six months. The amount fixed for 5 years and above rose to Rs151 billion from Rs97 billion.
The fixed deposits for less than three years, less than four years and less than five years slipped to Rs22 billion, Rs66 billion and Rs6 billion from Rs32 billion, Rs71 billion and Rs19 billion respectively during this period.
However, the banks in Pakistan remained unaffected by the severe global banking crisis that sunk hundreds of banks in United States and Europe instead they developed a strange strategy to remain profitable as they invested most of their liquidity in the government papers and left the private sector out of its priority.
But now there is lack of liquidity in the banking sector and the State Bank has to keep injecting liquidity to keep the banks liquid and enable them to invest in government papers.
The government has already borrowed about Rs500 billion from the scheduled banks during the first quarter of the current fiscal year.