Globally, financial professionals, particularly bankers, often project an air of arrogance, bolstered by their elite education, intense training, and high-profile lifestyles. This swagger is partly justified by their role in managing vast amounts of capital. Locally, this arrogance is evident among bankers as well.
Banking has traditionally been profitable, partly due to government fiscal mismanagement, but the recent years have been exceptional. Imagine achieving high double-digit growth on a trillion-rupee base while maintaining strong margins, akin to the success stories of software-as-a-service companies touted on LinkedIn.
Between FY21 and FY24, Pakistan’s banking sector saw its asset base expand by Rs23.5 trillion, reaching Rs51.7 trillion, with an average quarterly growth rate of 22.3 percent. Despite this, the increase in deposits was comparatively modest, rising by only Rs10.1 trillion. The remaining growth came from borrowings, including from the State Bank, which surged by Rs8.9 trillion. This indicates that much of the asset growth was funded by sources other than customer deposits.
In the April-June period, Pakistani banks reported a profit after tax of Rs119.4 billion, according to quarterly analysis. The industry’s gross markup for Q2FY24 was Rs1.96 trillion, marking a 4.37 percent increase from the previous quarter and a 30.2 percent rise year-on-year. However, there are signs of a slowdown as the State Bank of Pakistan has recently cut the policy rate by 200 basis points to 17.5 percent. This is evident in the net interest income after provisions, which totaled Rs452 billion, higher than the previous year but lower than in the preceding three quarters. Consequently, the profit after tax dropped by 13 percent year-on-year and 29 percent quarter-on-quarter, the lowest since Q3FY22.
The sector’s growth, despite its impressive figures, has been largely superficial. The investment-to-deposit ratio stood at nearly 97 percent, while the advances-to-deposit ratio failed to exceed 40 percent. Moreover, deposits held by scheduled banks as a percentage of GDP fell to 29.4 percent by FY24, the lowest since FY16, and down from the peak of 37.6 percent in FY20. Despite the industry’s claims of mobilizing new funds, this metric tells a different story.
Comparing internationally, Pakistan’s deposits-to-GDP ratio of 32 percent in 2021 lags behind Egypt’s 80.8 percent and Bangladesh’s 41 percent. The difficulty of opening an account, where customers often feel they have to beg for service, reflects a broader issue. Those making decisions in the industry may be disconnected from the realities of customer service, rarely visiting branches without significant protocol.
