KARACHI (Reuters) – Advances in Pakistan’s banking sector soared 19% in 2021, its highest growth in three years, thanks to economic recovery, a rise in consumer lending and the launch of new financing programs by the central bank, a brokerage report said on Monday.

Banks disbursed 10,000 billion rupees in 2021 compared to 8.4 trillion rupees a year ago.

Disbursements under TERF (Temporary Economic Relief), housing finance and auto finance have all led to an increase in advances, according to a report by Topline Securities. A total of 435 billion rupees, or 4% of the total advances, has been approved under the TERF from April 2020 to March 2021, under which disbursements are still pending, he said.

The SBP expects TERF disbursements to amount to Rs 273 billion in FY2022 compared to Rs 163 billion last year. “In July 2020, SBP also mandated banks to increase their housing and construction finance portfolio to at least 5% of their private sector advances by December 2021, otherwise they will be subject to penalties. This, coupled with increased disbursements under the Mera Pakistan Mera Ghar program, has also boosted overall financing for construction and housing, ”he said.

“As a result, total housing finance (including funding for bank workers) increased to 286 billion rupees (3.9% of credit to the private sector) in November 2021, from 216 billion rupees (3.3 % of credit to the private sector) ”, he added.

Auto financing jumped 34% to Rs 385 billion in 11 months of 2021, on strong auto sales and single-digit interest rates. In the second half of 2021, the government also imposed an increased tax of 2.5 to 5 percent on banks falling below the 50 percent advance-to-deposit ratio (ADR) threshold, forcing them to increase their lending.

The report expects advance growth to remain in the 10-15% range in 2022 and be driven by TERF disbursements, housing finance, etc.

The ADR ratio of banks in 2021 reached 48.4% against 47.5% the previous year, which remains below the average ADR of the last 10 years of 53% and the peak of 83% in 2008.

Pakistani banking sector deposits grew 17% year-on-year to reach Rs 20.9 trillion in 2021, which is higher than the average deposit growth rate of 13% over the past 10 years. The strong growth of M2 (broad money) and the increase in remittances led to an increase in the growth of deposits.

Currency in circulation as a percentage of broad money stood at 29% in 2021, up from 28% in 2020 and the five-year average of 27%, which could be due to low single-digit interest rates and an effort to stay out of sight of the tax authorities.

Investments by banks rose 22% to Rs 14 trillion, as banks continued to favor investments in risk-free government securities. As a result, the sector’s investment-to-deposit ratio (IDR) improved to 67% in 2021 from 65%.