KARACHI: Banking sector deposits during 2020 increased by 22 per cent or Rs3.204 trillion to hit an 18-year high at Rs17.876tr, latest data released by the State Bank of Pakistan (SBP) showed.

On the other hand, despite a significant increase in deposits, the banks failed to energise the economy as advances remained at just 10pc of the deposits added during 2020.

As per the SBP data, the banking sector advances during 2020 were Rs332bn.

Meanwhile, the banks used higher advances to invest in government papers. During 2020, the banks invested Rs3.186tr in T-bills and Pakistan Investment Bonds, taking the total investment in the government papers to Rs11.552tr.

During the year under review, the banking sector investments increased by 38pc.

“Both the net foreign assets of the banking system and the domestic assets have increased during 2020 which built the banks’ deposits,” said Pak-Kuwait Investment Company Head of Research and Develop­ment Smaiullah Tariq. People are spending less and are keeping most of their money in deposits due to the pandemic, he added.

“People did not travel and go for Umrah which means they consumes less amount this year. In other words, their money remained in deposits of the banks.”

A senior banker said that low advances could see a change with the government’s push for increasing housing and constructions loans. The government has made it mandatory for banks to extend loans for low-cost housing projects.

“Despite an attractive subsidised loans scheme for low-cost housing, the advances are still much lower than the expectations of the banks,” he said. Banks are still cautious about giving out loans for housing fears of high default rates.

Published in Dawn, January 16th, 2021