Rising remittances from overseas Pakistanis boost bank deposits

By Shahid Iqbal

Remittances by overseas Pakistanis have appeared as the silver lining for the economy as the rising dollar inflows have not only minimized the devastating imbalances on foreign payments, but also improved the money supply helping banks to increase their deposits.

During the last fiscal year the banks had been failed to attract fresh deposits, but in the first quarter (July-Sept) of 2009-10 their deposits grew by three per cent.

The dollar inflows mainly remittances of the overseas Pakistanis and the IMF loan for budgetary support helped build the Net Foreign Asset (NFA) which increased supply of money, bringing liquidity in the banking system allowing banks to invest more.

However, the banks with the fear of rising default have failed to lend the private sector and most of the liquidity being generated through the remittances is being parked against security papers.

The government and the State Bank believe that the remittances could reach up to $12 billion by 2010-11. This is the cheapest source of foreign exchange but most of the foreign exchange was utilised to pay down current account imbalances.

Pakistan received $7.8 billion remittances in 2008-09 while it has already received $1.5 billion in the first two months of the current fiscal year giving hope for a total of $9 billion by end of the fiscal year.

The inflows generated substantial liquidity in banking system and during the July-Sept period NFA reached Rs124 billion against minus Rs188 billion during the same period last year.

This liquidity helps banks to earn more but they have so far decided to earn from government papers taking no risk to extend loan to private sector.

According to the State Bank’s latest data, banks’ advances grew by just 0.4 per cent during Jan-Sept 2009 while their investment in the security papers grew by 54 per cent during the same period.

‘The rising remittances are silver linings for the economy and will help boost the economy which is still dormant,’ said Mohammad Imran, a research analyst.

Bankers said the private sector was reluctant to borrow for two reasons; high interest rate which increased the risk as well as cost of doing business, secondly poor economic growth that discourages the private sector to go for expansion or involve in any new business adventure.

‘Money needs peace to grow while business needs opportunities. Both money and opportunities are available but the law and order situation across the country is disappointing,’ said Aamir Aziz, a readymade garment exporter who says his business shrunk to just 10 per cent of what it was a year ago.

‘Balance sheet of the country is in good shape despite poor export growth but it was due to declining import and mainly the import of machinery which works for economic growth,’ he said.

Source: http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/business/09-rising-remittances-boost-bank-deposits–szh-04

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