KARACHI: Deposit growth of the banking system stalled in 2018 despite one of the largest interest hikes of 4.25 per cent in a single year. At 8pc, the rise in deposits was the slowest in a decade, according to a research note put out by Topline Securities.

The State Bank of Pakistan reported deposits of scheduled banks grew by Rs992.11 billion to Rs13.353 trillion during 2018. Since 2008, deposits have never shown single digit increase. Low deposits growth could hit advances by the banks, as well as their capacity to finance government debt. So far advances by the banks show healthy performance, but their participation in government debt auctions has been suppressed all through the year.

Investments in government paper have decreased by 11pc in 2018. This is the first time in a decade that the sector has shown negative growth in investments. Sector’s investment to deposit ratio stands at 57pc as of December 2018. This decline can be attributed to the shift of government borrowing from SBP.

Advances rose by 21pc during the year which was the highest in the last 13 years. The advances to deposit ratio came out at 59pc, highest since 2012.

Topline Securities reported that the deposits growth was 10pc in 2017 and 12pc average in last five years.

The advances to private sector have shownn high growth compared to last year. Another report of the State Bank shows the private sector borrowing in the calendar year FY19 (July-Dec 28) increased by 65pc. The borrowing during the first six months of the fiscal FY19 year was Rs503.7bn compared to Rs304.8bn in the same period of last fiscal; a growth of 65.2pc.

This high growth does not reflect the interest rate hike. The State Bank in the last monetary policy increased the policy interest rate by 1.5pc to 10pc.

Published in Dawn, January 9th, 2019