Pakistan's deposit protection scheme aligns with global
standards: SBP
Dr. Inayat Hussain, the deputy governor of the State Bank of
Pakistan (SBP), announced on Wednesday that depositors in Pakistani banks are
legally insured for amounts up to 500,000 rupees ($3,000). Currently, 94
percent of depositors benefit from full protection under the deposit protection
system.
Understanding the Deposit Protection Scheme
All scheduled banks operating in Pakistan are members of the
deposit protection scheme (DPC). The DPC offers coverage of up to Rs500,000 per
depositor per bank for the domestic operations of member banks, an increase
from the previous limit of Rs250,000. Established in 2018 as a subsidiary of
the State Bank of Pakistan, the DPC is mandated to compensate bank depositors
for their losses in the event of a bank failure, as stipulated in the Deposit
Protection Corporation Act of 2016.
State
Bank warns about limit of deposit protection at banks
Global Compliance
According to the SBP, the current deposit protection level,
which stands at about 1.3 times the GDP per capita, aligns with international
standards. This level falls within the recommended range of 1-2 times GDP per
capita, indicating adequacy.
Financial System Resilience
The majority of deposits held in banks benefit from deposit
insurance in the event of a bank failure, underscoring the resilience of
Pakistan's financial system. The SBP's DPC annual report for 2021–2022 reported
continuous growth in eligible deposits at member banks, in tandem with the
increase in total deposits.
As of June 30, 2022, bank deposits in Pakistan had increased
by 15.2 percent year-on-year, reaching Rs22.8 trillion. Eligible deposits also
saw growth, rising by 11.4 percent to Rs12.2 trillion. Several factors contributed
to this deposit growth, including an expanded branch network, increased
remittances via the Roshan Digital Account (RDA), and higher returns. A
decrease in Covid cases during the previous fiscal year also contributed to a
return to normal business routines and further supported deposit growth.
Bank
deposits surge to Rs26.11 trillion in August, marking an 18% Increase
The report anticipates that the DPC will continue its
practice of reviewing and revising coverage levels in the future to ensure
alignment with local macroeconomic conditions and global best practices.
Effectiveness of SBP's Safety Net Frameworks
The long-standing financial stability of Pakistan's banking
sector, as reflected in its satisfactory financial soundness indicators,
underscores the effectiveness of SBP's safety net frameworks. In June 2022, the
sector's capital adequacy ratio stood at 16.1 percent, surpassing the minimum
regulatory requirement of 11.5 percent and the global standard of 10.5 percent.
Additionally, the key risk indicator, the non-performing loans ratio (0.7
percent net of provision), remains at one of its lowest levels in the past two
decades.
Deposit Distribution
The percentage of fully protected deposit value in both
conventional and Islamic banking institutions reflects the distribution of
deposits within the banking industry. It highlights that a significant portion
of deposits is held by a relatively smaller number of depositors. This
combination of the number and value of eligible depositors aligns with
internationally accepted principles for deposit insurance, which aim to protect
the majority of depositors while maintaining market discipline by leaving a
significant number of depositors uncovered.
Source: The News