Pakistani banks pump rs1 trillion into NBFIs to meet ADR targets
Banks have injected over Rs1 trillion into non-bank financial institutions (NBFIs) to meet the 50% advance-to-deposit ratio (ADR) target by the end of 2024, thereby avoiding incremental taxation, according to the latest report from the State Bank of Pakistan (SBP).
Between July 1 and November 15, bank
lending to NBFIs reached Rs1,015.38 billion, a stark contrast to the net debt
retirement of Rs55.8 billion during the same period last year. This surge
represents a 130% increase over the total NBFI credit stock of Rs441.6 billion
as of June 30.
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NBFIs, which offer financial
services without banking licenses, have become a key focus for banks managing
excess liquidity. To meet ADR targets, banks have ramped up lending while
simultaneously reducing their deposit bases. Some banks have even issued
notices to large depositors with balances between Rs1 billion and Rs5 billion,
introducing a 5% fee on their accounts.
In FY24, NBFIs experienced a net
debt retirement of Rs70.9 billion, a significant reversal from the net credit
of Rs144.7 billion in FY23. Earlier this year, bankers warned that without
increased lending support, many NBFIs risked closure amid high interest rates,
which remained at 22% throughout FY24, straining the economy while benefiting
banks through government borrowing.
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Despite a reduction in government
borrowing following the SBP’s Rs2.7 trillion in profits, banks are now under
pressure to increase private sector lending and reduce deposit holdings to meet
ADR requirements.
By the end of the third quarter of
FY24, NBFIs recorded a net debt retirement of Rs93 billion, compared to Rs140
billion borrowed during the same period last year.
Source: Profit Pakistan