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KARACHI: Pakistan has seen a significant shift toward digital payment solutions, with citizens transacting Rs1 trillion in just 16 days through the instant payment system Raast. This is a remarkable change compared to the Rs1 trillion processed over 336 days two years ago.
According to the State Bank of Pakistan (SBP), Raast has handled 892 million transactions totaling Rs20 trillion. The most recent trillion was accomplished in just sixteen days. “This reflects SBP’s commitment to making digital payments easier and accessible for all,” said the bank. According to the numbers, the average amount paid via the Internet was Rs22,421.52.
As per the SBP’s Governor’s Annual Report 2023-24, the Person-to-Person (P2P) module, which was introduced in February 2022, was the primary factor responsible for the significant increase in the volume of Raast transactions.
With the launch of the Person-to-Merchant (P2M) module in Raast by the SBP, digital payments and financial markets in Pakistan are undergoing constant improvement. Businesses can now collect payments using a variety of methods, including QR codes, Raast IDs, bank account numbers, and request-to-pay alternatives. This module enhances digital payments by giving clients more options and convenience. The goal of this project is to make it easier for companies to do business.
As a whole, the number of accounts continued its double-digit expansion, increasing 18% to 215 million accounts by the end of FY24. “This fast growth is conducive to raising financial inclusion in the country,” the report emphasized.
With an increase in branch networks to 18,355 in FY24 from 17,751 in FY23, the expansion of SBP-regulated organizations, such as banks, microfinance banks (MFBs), and development financial institutions (DFIs), facilitated the substantial growth in accounts. A growing number of alternate delivery channels (ADCs) and these branches helped simplify financial intermediation and service a wide customer base in FY24.
The growing number of banking sector branches is a positive sign that outreach and financial inclusion will continue to improve in the economy, even when operating conditions are difficult and inflation is high.
The banking industry was the engine that propelled the overall 21.6% increase in deposits mobilized by banks, DFIs, and MFBs to Rs33,236 billion in FY24, with deposits growing to Rs32,538 billion, up 21.5% from the previous year. Due to higher interest rates, the biggest jump in deposits was seen in the savings and fixed product groups.
“This rising trend in savings accounts bodes well for reducing cash preference and improving the saving rate in the economy, which remains low compared to regional peers,” according to the study. The governor’s report states that greater markup/interest expenditures on deposits in the banking industry increased to Rs3,236 billion in FY24 from Rs2,011 billion in FY23, reflecting this expansion.
With a total of Rs12,650 billion in outstanding loans at the end of FY24, the growth in overall advances (credit to the private sector) of SBP-regulated institutions stayed modest at 0.3% in FY24. Nevertheless, investments, especially in government securities, rose 35.2% to Rs33,271 billion. “This marked the second consecutive year of significant growth in investments after FY22.”
As the economy slowly got better and inflation kept going up but not going down, the financial sector kept up its steady performance by continuing to offer loans and other financial services. At the close of FY24, the asset base of the financial industry had increased by 21.6%, reaching Rs65.2 trillion. Nevertheless, the financial depth, which is defined as the ratio of assets held by the financial sector to GDP, decreased from 64% in FY23 to 61.5%. Since high inflation usually hinders financial intermediation, this was the second year in a row that financial depth has been declining.
The banking sector’s net earnings (profit after taxes) increased by 30.4% to Rs645.2 billion in FY24. With tax costs comprising approximately 52% of pre-tax profits in FY24, growing taxation charges, especially for banks, have been a cause for concern.
“From a financial stability perspective, rising taxation has implications for the banking sector’s ability to build buffers necessary to withstand unforeseen macro-financial shocks, take risks, and continue lending during low economic growth periods,” according to the SBP report.
Unlike banks, Development Finance Institutions (DFIs) saw a 23.7% decline in their asset base to Rs2,460 billion at the end of FY24. This was due to a decrease in the portfolio of government securities, which had grown strongly during FY23. A 37% decline from Rs21 billion in FY23 to Rs13.2 billion was the result of DFIs’ after-tax profits.
The rate of asset base growth for microfinance banks (MFBs) slowed to 8.6% in FY24 from 19.3% in FY23. A more challenging operating environment for MFBs compared to banks and DFIs is reflected in the slower growth of advances and investments.
