Growth in loans still low as deposits increase by 10%

KARACHI:

Commercial banks have increased their efforts to generate cheap deposits amidst declining interest rates in the first half of 2015, according to sources.

On a year-to-year basis, deposits of the banking sector increased by 10% in January-June to Rs9.1 trillion, which is higher than 8% growth, recorded during the last five years.

The growth in the amount of bank loans that were given out in the first six months of 2015 remained muted on a year-to-year basis as advances increased 3% annually in January-June, which represented ‘slight improvement’ in view of the average growth of 2% over the last five years, according to a senior research analyst Umair Naseer, Topline Securities. 

“The advance-to-deposit ratio reached a multi-year low of 50%, as banks preferred to invest in risk-free government securities,” Naseer said.

The State Bank of Pakistan (SBP) has cut the benchmark interest rate by 3%, bringing it down to 7% since October 2014 on the back of low inflation. As a result, banking spreads shrank to 5.75% for the first five months of 2015, which shows almost 5% attrition over the spread of 6.05% reported for the same period of 2014.