Total deposit of the scheduled bank has gone up by 12 per cent to Rs 9.3 trillion or 33 per cent of GDP in 2015 against an increase of 11 per cent in 2014 and average growth of 14 per cent during the last 5 years (2010-14).
Umair Naseer, an analyst at Topline Brokerage house attributed this to higher broad money (M2) growth in 2015, which clocked in at 11 per cent against 10 per cent in 2014 and last 5-year average M2 growth of 13 per cent.
The slight improvement in deposits growth bodes well for banking sector as there were concerns of deposit withdrawals following imposition of withholding tax (WHT) on cash withdrawal from bank accounts in 2015.
Government imposed WHT of 0.6 per cent on all banking transaction of over Rs 50,000 in a day for non-filers. Later on, the government reduced the tax rate to 0.3 per cent till January 2015 allowing traders to file tax returns in the given time.
Investments registered strong growth of 32 per cent to Rs 6.7 billion as banks continued to invest in risk-free government securities. Consequently, investment to deposit ratio (IDR) reached an all time high of 72 per cent in 2015.
Advances growth remained lackluster in 2015 increasing by 7 per cent against 9 per cent in 2014, increasing to Rs 4.7 trillion (17% of GDP).
This is also significantly lower than our initial estimate of 12 per cent at the start of the year, the analyst said.
Despite below expectation advances growth in 2015, advances grew owing to strong prospects from the initiation of China-Pakistan Economic Corridor (CPEC).
According to Ministry of Water and Power, out of the total $46 billion, $28 billion projects are to be completed by 2018, which will involve financing of power and infrastructure projects by Chinese and local banks. This coupled with other planned power sector projects is likely to trigger higher advance growth going ahead.
These projects will generate an additional credit demand of $2 billion annually during the next three years, which is equivalent to 5 per cent of the total advances of the industry.
Bankers are also of the view that local component of the financing could be 10-20 per cent of the total planned investment during the next three years. Advances will grow by 10-12 per cent in 2016 and 14 per cent on average during the next three years from 2016-18, the analyst said.
Initially, there were concerns that whether the planned Chinese investment would materialise. However, financial close of some of the projects has already been achieved indicating strong potential for CPEC related funding.
On the consumer side, banks are increasing their lending. However, their part of the total portfolio still remains low. As per SBP, consumer lending in 2015 increased by 10 per cent in line with last year’s figures and its proportion as a percentage of total loans stood at 6 per cent (1% of GDP). Corporate portfolio still dominates the total loan book of banks with total proportion of 67 per cent.
Spreads between the lending and deposit rate remained under pressure during 2015 following 300 basis points cut in interest rates and SBP initiative to curb spreads. Spreads as of November 2015 declined to 5.3 per cent against 6 per cent in Dec 2014. These spreads do not include return from investments, which protected banks from falling interest rates in 2015.
The analyst said that spread may remain flat in 2016 due to anticipation of status quo in interest rates. However, banks margins could come under pressure in 2016 as a major chunk of high-yielding Pakistan Investment Bonds (PIBs) mature in 2016.
Despite falling interest rate scenario and tough regulatory measures taken during 2015, banks are anticipated to report 9 per cent earnings growth thanks to fixed high-yielding PIBs.
The analyst also pointed to improving macros (estimated fiscal year 2016-18 average GDP growth of over 5 per cent), expected increase in credit growth to 14 per cent in 2016-17, and Strong Capital Adequacy Ratio (CAR) of 16 per cent against 10% requirement.
