Not too long ago, the outskirts of Karachi had dense mangroves. Often, in the early mornings, you could see rowers powering through their boats just as the sun was rising. But the habitat has changed since then: unfettered urbanisation and an obsession with ugly concrete structures have done immeasurable damage to the city’s ecology. Fortunately and unfortunately, we are far from the only one. As a country, Pakistan has seen steady deforestation, with forest cover consistently declining from 6.5 per cent in 1990 to 4.7pc by 2023.
The impact has been hard to miss. In the last two decades, each one of us has experienced it firsthand: summers have become longer, rains more intense and winters extreme. It’s concerning, to say the least. But none of the consequences have been as tragic as the fact that our bankers can’t touch grass at all.
This disconnect from reality was echoing loud at the Pakistan Banking Summit where the bankers poured their hearts out and tried to raise awareness about their unfair treatment.
In the context of Pakistani banking, the actual indicator to focus on is investments, which reached Rs27.9 trillion by 2024, representing 93pc of all deposits. This is what it’s all about: the government, forever starving for funds, wants to borrow, and banks, holding cheap customer deposits, happily provide it with all the required money. It’s simultaneously a symbiotic and toxic relationship where both parties heavily depend on each other for survival yet keep complaining about the treatment they get.
The 20 listed banks recorded an aggregate net income of Rs579bn during 2024, up 6.1pc over the previous year
For the industry, this relationship has brought about lucrative profits, with the 20 listed banks recording an aggregate net income of Rs579 billion during 2024, up 6.1pc over the previous year. This was enabled by two major factors: an elevated interest rate environment and a high proportion of current and savings accounts, with the former helping pump the gross and net markup incomes to Rs7tr and Rs1.9tr, respectively.
Among the five largest banks by asset base, markup from investments, on average, accounted for 71pc of the gross interest earned. Considering that the federal government securities made up more than 92pc of their investments, we can safely assume that the majority of the above-mentioned income is thanks to Islamabad’s borrowings. This reliance also manifests itself in the fee and commission, which barely contributed just 10pc to the total income.
Just consider the fact that of the Rs4tr in incremental advances to the non-government sector, Rs1.6tr were doled out to the non-banking financial institutes alone, who in the past have shown a penchant to invest the same money in sovereign instruments.
Admittedly, another Rs2.3tr went towards the private sector ie both business and personal segments. For some, that is evidence enough of the industry’s commitment to promoting credit activity in the country.
Data from the State Bank of Pakistan (SBP) shows that during January, credit to non-government declined by a substantial Rs1.2tr over the preceding month, of which just under Rs900bn were retired by the private sector.
On the liabilities side, a more transformative shift is underway where deposits — the bread and butter of the banking license — have lost some lustre, only to be replaced by borrowings from the central bank. As of 2024, the share of borrowings in the industry’s total liabilities jumped to 28.9pc, compared to just 12.1pc in December 2020.
Just sample this: while deposits have increased by 70.5pc between 2024 and 2020, the corresponding surge in borrowings was a massive 415.8pc. Do remember that over the last few years, deposits as a share of the gross domestic product have already pared gains made during the late 2010s to slip under 20pc.
Meanwhile, the government collected Rs635bn in the form of taxes from just 20 listed banks in 2024 — the most from any sector. So what if their chief executives complain every once in a while, as long as the inflows to the exchequer keep coming? Ultimately, both just crave for each others’ attention and aren’t afraid to throw some tantrums. Occasionally, the regulator joins the party too, talking about all that’s wrong with the industry — just like a casual bystander with no actual powers would do.
But during office hours, it’s all business as usual. The government gets its funds, the banks and SBP their profits while those running the institutions continue to draw hefty bonuses. It all works out neatly in the end.
The writer is the co-founder of Data Darbar and works at the Karachi School of Business and Leadership
Published in Dawn, The Business and Finance Weekly, March 17th, 2025
