Islamabad, Dec 13: The Deposit Protection Corporation (DPC) has released its fourth Annual Report for the fiscal year that concluded in June 2024. According to the DPC’s 2023–24 annual report, domestic bank deposits in Pakistan increased to Rs. 31 trillion, a 22 percent year-over-year increase, driven by deposits of Rs. 23.8 trillion in conventional banking and Rs. 7.4 trillion in Islamic banking.
Strong public confidence in the banking system is demonstrated by the 20% increase in eligible deposits to Rs. 16.9 trillion, of which Rs. 12.2 trillion was in conventional accounts and Rs. 4.7 trillion was in Islamic accounts.
There are 79.2 million scheduled bank depositors as of June 30, 2024, of whom over 78 million are qualified depositors and whose deposits are protected up to the protected deposit level. According to the report, DPC has a substantial deposit protection fund worth Rs. 148 billion.
The impressive increase in deposits during FY 2023–2024 can be attributed to several causes. The strict monetary policy stance during FY 2023–24, which maintained interest rates at high levels to reduce inflation, was a major motivator. This encouraged savers to increase their bank deposits to benefit from greater rewards.
More people entering the formal banking industry was also aided by initiatives to improve financial inclusion, such as growing branch networks and programs aimed at underbanked groups. Innovations in technology have also been very important. Managing deposits is now easier thanks to the widespread use of online banking platforms and mobile banking apps, which has increased clientele.
Additionally, since the banking industry facilitated these inflows, the rise in overseas remittances from the Pakistani diaspora during FY 2023–24 has also made a substantial contribution to the expansion of deposits.
Protected and Eligible Deposits
Member banks have 79.2 million depositors as of June 30, 2024. These consist of 14.4 million Islamic bank depositors and 64.8 million conventional bank depositors. 78.3 million, or 98.9 percent, of these depositors qualified for deposit protection. According to a segment-by-segment review, the Corporation’s present deposit protection system covered 98.9 percent of depositors in conventional banking and 98.6 percent of depositors in Islamic banking.
In the unlikely case of a bank failure, deposit protection is available for 51.3 percent of all conventional banking deposits and 63.4 percent of all Islamic banking deposits, in terms of value. The guarantee amount or coverage should be modest, believable, and sufficient to cover the majority of depositors with sizable amounts of deposits subject to market discipline, according to the International Association of Deposit Insurers’ (IADI) Core Principles for Effective Deposit Insurance Systems.
The proportion of qualified depositors in Pakistan’s conventional and Islamic banking institutions adheres to this principle, with the majority of depositors protected by the current deposit protection mechanism and a select few with high deposit values subject to market discipline. This also validates the Corporation’s position about its goal of safeguarding small or less well-off depositors.
According to the segment-wise research, 9.3 percent of conventional and 11.6 percent of Islamic banking deposits are fully protected as of June 30, 2024. In terms of numbers, 91.7 percent of depositors who are eligible for Islamic banking are fully safeguarded, compared to 95.1 percent of those who are eligible for conventional banking.
Since fully covered depositors have balances that are less than or equal to the Rs. 500,000 coverage limit, the numbers above suggest that fully protected depositors would get full reimbursement in the case of a bank failure. The coverage limit applies to those whose balances above Rs. 500,000, and the excess amount of deposits can be recouped through a process aided by the regulator.
It is important to note that by the end of June 2024, 93.4 percent of all domestic depositors of scheduled banks in Pakistan would be fully protected under the country’s present deposit protection system.
Premium Gathering from Participating Banks
Premiums collected from member banks are the Corporation’s main source of revenue. The qualifying deposits shown in the yearly audited financial statements and AGM-approved accounts of DPC’s member banks serve as the basis for these premiums. Conventional banks continued to collect the majority of premiums since they had a larger percentage of qualified deposits than Islamic banks.
Private sector scheduled banks made up the largest portion of the premium pool in FY 2023–2024, with public sector banks coming in second. Public and private sector banks made contributions of Rs. 2.4 billion and Rs. 19.6 billion, respectively.
Since the Corporation’s founding, premium collection from Islamic banking institutions has been increasing and surpassing that of traditional banks, according to a segment-by-segment examination. In conclusion, a robust deposit protection mechanism supports the growth in deposits and premiums, which indicates the heightened confidence in both conventional and Islamic banking segments.
