The studies identified that countries should strive to promote a wider use of bank deposits not only to aid economic development and poverty alleviation but good to complement the mainstream macro prudential strategies to improve financial stability in a country. Moreover, banks have always played a significant position in any country’s economy. The experts also identified that they play a decisive role in the development of the industry and even trade. They are acting not only as the custodian of the wealth of the country but also as resources of the country, which are essential for the economic development of a nation. The general role of commercial banks is to offer financial services to general public and business, ensuring economic and social stability and sustainable growth of the economy.
| Pakistan: Deposit distributed by category of deposit holders (Outstanding Position at the end of the month) (Million Rupees) | ||
|---|---|---|
| Description | Aug-2020 | Sep-2020P |
| 1. Non Resident Deposits | 334,392 | 324,331 |
| 2. Resident Deposits | 15,713,399 | 16,160,445 |
| I. Government (Including govt. trusts, NGOs, and Corporate bodies) | 2,374,370 | 2,365,870 |
| II. Non-Financial Public Sector Enterprises (NFPSE) | 1,121,086 | 1,088,122 |
| III. Non-Bank Financial Institutions (NBFIs) | 398,379 | 602,108 |
| IV. Private Sector (Business) | 3,317,456 | 3,468,630 |
| V. Trust Funds and Non Profit Organizations | 409,175 | 412,867 |
| VI. Personal | 8,051,330 | 8,184,328 |
| VII. Other | 41,603 | 38,520 |
| Total | 16,047,791 | 16,484,777 |
In the developing countries like Pakistan, the experts view that banks have mainly utilized the deposits to meet financing needs of the Government of Pakistan as the private sector remains reluctant to borrow for business expansion or organizing new ventures especially under the current Covid-19 pandemic situation. Present statistics showed that the bank deposits rose 20 percent over a year and stood at Rs16.66 trillion in October 2020. Such deposits had amounted to Rs13.91 trillion a year ago in October last year. Furthermore, key sources of higher deposit growth are increased in money supply (17 percent year-on-year basis) and the growth in bank deposits of individual account holders. The bank deposits have been mostly utilised to finance Government of Pakistan’s projects as it declines short of required funds for development and non-development projects from its own resources because of low tax collection. No doubt, banks mainly lend to the state by investment in government securities like T-Bills (Treasury bills) and PIBs (Pakistan Investment Bonds).
Statistics also showed that the fresh deposits were utilised for enlarging the investment portfolio (T-bills and PIBs), which increased 38 percent year-on-year to Rs10.94 trillion, pushing IDR (investment-to-deposit ratio) up by nine percentage points to 66 percent. In the same period, the government’s net borrowing from the banking sector grew 47 percent year-on-year while total government net borrowing grew 18 percent year-on-year. On the other hand, the total loan portfolio (of the private sector) stayed broadly unchanged, with ADR (advances-to-deposit ratio) going down by nine percentage points to 49 percent. The contraction in ADR came in the wake of an important surge in deposits with almost no growth in loans to the private sector over the past one year. According to the State Bank of Pakistan (SBP), loans to the private sector reached at Rs8.11 trillion in October 2020 as against to Rs8.01 trillion in the same month of previous year.
The experts expect the banking sector to continue to prefer parking fresh deposits in government papers for the remainder of CY20 with 18-20 percent year-on-year growth in total deposits probable in ongoing calendar year 2020. They also expect a rebound in loan disbursements (to the private sector) from next calendar year 2021 onwards. Furthermore, the private sector had been mainly reluctant to borrow for new projects or for enlarging existing production capacity at a challenging time. Although business activities had been on the increase for the past couple of months, in Pakistan businesses avoided expansion keeping in view the likely second wave of Covid-19. Businesses may continue to hold back new investment decisions till clarity emerges on the Covid-19 front. But unluckily in times of financial stress or crises, depositors get anxious, can run on banks, and withdraw their deposits. Large depositors are frequently the first ones to run. By the law of large numbers, correlated deposit withdrawals could be mitigated if bank deposits are more diversified. Greater diversification of deposits could be attained through enabling a broader access to and use of bank deposits, i.e. involving a greater share of adult population in the use of bank deposit. Finally it is also recorded that based on this assumption, broader financial inclusion in bank deposits could significantly improve resilience of banking sector funding and thus overall financial stability.