Banks deposits declines after imposing WHT on all banking transactions

KARACHI: Owing to the imposition of withholding tax on all kind of banking transactions, the Bank’s deposits of the banking industry are declining since July 2015. Earlier, it was growing at an average rate of 15 per cent.

Total deposits of the banking industry crossed Rs 10 trillion mark as of June 2016, which is 10 per cent higher year-on-year compared to Rs 9.14 trillion as of June 2015.

This growth, however, is at a seven year lower and much lower compared to an average 15 per cent YoY increase recorded during fiscal years 2010-15, which can be attributed to WHT (higher for non-filers) on banking transactions.  The individual persons (non-fillers) are doing business on cash risk because of the withholding tax.

 On the other hand, gross advances of scheduled banks grew by 12 per cent year-on-year to reach Rs 5.11 trillion. The growth was impressive, as it clocked in at an eight year high and higher than the average growth of 7 per cent during fiscal year 2009-15.

This can be attributed to (1) multi-decade low interest rates as a result of loose monetary policy by the Central Bank and (2) uptick in project financing in the country (especially power projects).

The analyst expect banking sector’s profitability to post a decline of 12 per cent YoY in 2016 as the banking sector is expected to witness a 250-300bps decline in yields on 24 per cent of its interest earning assets given maturity of hefty long term government papers.

It also remains in-line with relatively subdued M2 growth of 11.69 per cent during 2015-16, which too fell short of average 14 per cent growth during the same period. Similarly, total deposits of scheduled banks grew by 8 per cent in first half 2016, which is also lower than the average 10 per cent deposit growth over the last seven years.

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