47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...

Pakistan Economic Survey 2011-12started to decline gradually and stood at 37.1 percent in 2010-11. During July —May 2012 M2 to GDP ratio hasdeclined further to 34.9 percent as compared to 35 percent in the same period last year on account of the pressure tothe liquidity profile of the financial markets mainly due to the rising government’s borrowing needs. On the otherhand another significant ratio DD + TD/M2, which represents monetary depth, has also shown the declining trendsince 2004-05 by decreasing from 77.6 percent to 71.8 percent in 2010-11. This is the period when the monetarypolicy stance changed from accommodating to tightening. However, reduced policy rate by 200 bps to 12 percentduring the current fiscal year 2011-12, resulted in a slight increase of 70.1 percent during July 2011—May 2012from 70 percent during the same period last year.In an effort to improve financial deepening and competition in the banking system, SBP is already encouragingdepositors to put their savings in government securities through Investor’s Portfolio Securities (IPS) accounts whichmay lead to better returns on deposits over time. Moreover, in May 2008, SBP introduced a minimum percent flooron all categories of Savings/PLS Saving Products. Consequently, average deposit rate of all saving related productsincreased from 2.1 percent to 5.25 percent, with no significant change thereafter. The saving deposits category nowaccount for 38 percent of all bank deposits and 52 percent of total number of deposit accounts. 1Islamic BankingThe Islamic banking industry in Pakistan hasmaintained a strong and sustainable growthTable 5.12: Islamic Banksmomentum in the wake of fragile economicconditions. Over the past six years it has witnessedan average growth of 30 percent.Rs. BillionCY05 CY06 CY07 CY08 CY09 Dec-10 Dec-11Assets of the Islamic banks 71.5 119.3 205.9 276.0 366.3 477.0 641.0Deposits of the Islamic Banks 49.9 83.7 147.4 201.6 282.6 390.1 521.0Share in Banks Assets 1.95% 2.79% 3.98% 4.90% 5.60% 6.68% 7.80%Share in Bank Deposits 1.75% 2.62% 3.82% 4.78% 5.90% 7.16% 8.40%Source: Islamic Banking Department, State Bank of Pakistan*Provisional dataThe asset base of the industry reached Rs. 641billion reflecting 34 percent Year to year (YOY)growth, while the share in bank assets increased to7.8 percent from 6.7 percent during the periodunder review. The growth in assets is mainlyattributed to financing and investment that togethergrew by 40 percent year to year basis. On the otherhand deposits reached to Rs. 521 billion depictingYOY growth of 34 percent by end of Dec 2011.Thus it contributed 8.4 percent in banks depositsagainst 7.2 percent in Dec 2010. Similarlyoperating performance indicators also witnessedencouraging performance in 2011, as nonperformingfinancing (NPFs) declined while returnon assets (ROA) and return on equity (ROE) bothremained higher than that of overall bankingindustry average.The breakup of financing in CY11 indicates thatMurabaha dominates followed by DiminishingMusharaka and Ijara with all other modesconstituting a relatively small share.MicrofinanceThe Government of Pakistan and the SBP remaincommitted to promoting microfinance as a longterm strategy to broaden access to financialservices by the low income segments, thusimproving their livelihood and income generatingopportunities.1 Monetary Policy statement, April, 2011-1276