The banking sector in Pakistan witnessed a significant increase in advances, reflecting an aggressive lending strategy aimed at meeting regulatory requirements for the Advance-to-Deposit Ratio (ADR). This uptick is a direct response to avoid penalties from the State Bank of Pakistan (SBP).
Aggressive Lending to Meet ADR Targets
In October 2024, banks increased their advances by a staggering Rs. 1.47 trillion, pushing the total advances to Rs. 13.77 trillion. This represents an 11% month-over-month growth compared to Rs. 12.30 trillion in September 2024.
This increase in lending led to the sector’s ADR rising to 44.2% from 39% the previous month, signaling a strategic push by banks to meet the regulator’s benchmark.
Month-Over-Month Advances Growth
The following data highlights the consistent growth trajectory in advances:
- August 2024: Rs. 11.80 trillion
- September 2024: Rs. 12.30 trillion (increase of Rs. 497 billion)
- October 2024: Rs. 13.77 trillion (increase of Rs. 1.47 trillion)
Deposits Decline Despite Rising Advances
While advances surged, the deposits in the banking sector fell slightly to Rs. 31.11 trillion in October from Rs. 31.34 trillion in September.
Factors contributing to the decline include:
- A discouraging attitude from banks toward depositors.
- Lower saving rates, reducing the incentive for customers to deposit funds.
Drop in Investments and Investment-to-Deposit Ratio
The banking sector’s total investments declined by Rs. 1.7 trillion, or 5.7%, in October, standing at Rs. 28.9 trillion, compared to the preceding month.
The Investment-to-Deposit Ratio (IDR) also saw a dip:
- September 2024: 97%
- October 2024: 93%
The surge in advances showcases the banking sector’s strategic response to regulatory pressures, but the simultaneous decline in deposits and investments highlights underlying challenges. As banks strive to meet ADR targets, maintaining deposit growth and optimizing investments will be critical for sustained financial stability.
