Banking sector’s ADR climbs to nearly 48% as of Nov 29

The banking sector’s gross Advance-to-Deposit Ratio (ADR) maintained its upward trajectory, hitting nearly 48% as of November 29, 2024.

The banking sector’s ADR improved to 47.8% as of November 29, 2024, up from 44.3% recorded in October 2024, stated brokerage house Arif Habib Limited (AHL) on Wednesday.

“The ratio had previously bottomed out at 38.4% in August 2024. Since then, the ADR has increased by 944 basis points (bps) to reach its current level of 47.8%,” the brokerage house added.

As per the data, as of November 29, 2024, the banking sector’s advances stood at Rs14.9 trillion, up from Rs13.8 trillion recorded in October 2024.

Meanwhile, the sector’s deposits remained largely stable at Rs31.1 trillion as of November 29, 2024.

The government, vide Finance Act 2022, introduced higher tax rates on investment income for banks with ADR ratio below 50%. This tax aims to increase commercial lending and tax passive income at a higher rate being an income from non-exertion.

Therefore, in order to avoid this additional tax and maintain high profits, banks are aggressively disbursing loans to the private sector to achieve the 50% ADR target and also announced some measures to discourage large deposits.

Last month, in a move to avoid a potential government-imposed tax, some commercial banks announced the imposition of a 5-6% monthly fee on checking accounts having deposits/balances ranging from Rs1 billion to Rs5 billion on the last day of the month aimed to discourage large deposits.

However, the fee was later reversed as the State Bank of Pakistan (SBP) granted some relaxations to the banks and officially announced that the Minimum Profit Rate requirement would not apply to the deposits of financial institutions, public sector enterprises and public limited companies.

The ADR issue was also the focus of a high-level meeting held on Tuesday, chaired by Deputy Prime Minister and Foreign Minister Senator Mohammad Ishaq Dar.

The participants discussed the use of ADR policy on the overall lending to productive sectors of the economy, its impact on tax revenue targets and the optimum environment for the banking sector.