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Pakistan Banks: Banking Sector Deposits Show Decade low Growth

• Pakistan Banking sector deposits grew by 8% YoY during 2018 (as of Dec 28), a decade low growth. This is in comparison to 10% growth in 2017 and 12% average in last 5 years. This is also the first time since 2008 that the sector has recorded single digit deposit growth.
• At the same time M2 growth has been sluggish too, clocking in at 11% YoY. The slower M2 growth can be attributed to decline in Net Foreign Assets (NFA), where NFA has fallen to negative Rs863bn compared to Rs428bn in the corresponding period last year. The decline in NFA is a consequence of yawning current account deficit where CA deficit for FY18 was recorded at ~US$19bn and lower foreign disbursements.
• Advances have grown by 21% YoY which is the highest in 13 years (since 2006). Sector ADR stands at 59%, highest since 2012.
• On the other hand, investments have decreased by 11% YoY. This is the first time in a decade that the sector has shown negative growth in investments. Sector IDR stands at 57% as of Dec 2018. The decline in investments can be attributed to the shift of government borrowing to State Bank of Pakistan (SBP).
• We expect deposits to grow by 10-12% in 2019. However, we believe Advances growth to feel the pinch because of higher interest rates and likely increased focus towards government paper in 2019.