Bank deposits in Pakistan drop by PKR 1 trillion in a month

Deposits in Pakistani banks fell by PKR 1,000 billion in a little over a month amid expected penalties on non-filers, including freezing of bank accounts, and lower interest rates.

Data shared by the central bank showed that bank deposits on November 30 stood around PKR 31,145 billion. However, by January 3, these deposits had fallen to PKR 30,129 billion, a decline of PKR 1,016 billion.

Why have deposits fallen?

Tax amendments

The Tax Amendment Act 2024 is currently awaiting final approval from the National Assembly. The amendments, once approved, would bar non-filers from opening or maintaining current, savings, and investor portfolio accounts. The only bank accounts they would be allowed to open or maintain would be the Asaan accounts.

The amendments would also place limits on the amount of cash that non-filers would be able to withdraw.

In addition, they would not be able to purchase or register vehicles, register or attest the transfer of immovable properties exceeding the tax-collection authority’s limit, and buy or sell government securities.

Declining interest rates

Meanwhile, an analyst told Nukta that deposits had also decreased because of the falling interest rates, which have been slashed from a record 22% last year to 13% currently.

The average deposit rate last June was 18.26%, while in November it declined to around 13.49%.

Advance-to-deposit ratio

Another reason is banks advance-to-deposit ratio (ADR). At the end of November, the banking sector’s ADR was less than 40%. Fearing heavy taxation of up to 16%, banks went on a lending spree and discouraged fresh deposits.

Awais Ashraf, director research at AKD Securities, said that banks shy away from taking deposits to manage the ADR to avoid incremental taxation on government securities.

Meanwhile, Head of Research at Al Habib Capital Abdul Azeem said that the decline in deposits during December was primarily due to banks’ strategic response to anticipated taxation if their ADR was below 50%.

However, the government later raised the overall tax rate on banks to 44%, with it going down by 100 basis points every year.