Financing to private sector jumps to 44% of deposits

Bank financing to businesses in the private sector surged nine percentage points in one month to 44% of deposits by October 25, 2024, as the government approached the Supreme Court to vacate a stay order granted by the Islamabad High Court (IHC) against a 15% additional tax on financial institutions in case they fail to meet the financing target of 50% on December 31, 2024.

Citing the State Bank of Pakistan’s (SBP) weekly data, research houses reported on Wednesday that the advance-to-deposit ratio (ADR) had been at 39% at the end of September 2024. Topline Research reported that banks’ advances to the private sector increased 11% to Rs13.4 trillion as of October 25, 2024. JS Global reported that banks’ total deposits declined 3% to Rs30.5 trillion in October compared to September. The drop in deposits automatically improved the ADR by some percentage points.

Last week, the IHC temporarily barred the government from collecting the additional tax till it gives a final ruling. The court is scheduled to hold a hearing on December 3.

The federal government, which is facing a shortfall in tax collection as per the International Monetary Fund (IMF) targets, has approached the Supreme Court to get the IHC’s interim order overruled.

The government has estimated revenue collection of around Rs100 billion from banks in terms of the additional tax. A tax firm projected the collection at Rs197 billion.