SBP issues clarification on bank deposits

The State Bank of Pakistan (SBP) denied claims that deposits in the banking system that are greater than Rs500,000 are risky.

SBP clarification on bank deposits: The central bank stated that client deposits are “perfectly safe” as a result of Pakistan’s strong banking system in its clarification.

Due to its low level of net non-performing loans (bad loans), the banking sector in Pakistan is well-capitalize, highly liquid, and profitable. In the first half of CY23, the industry reported strong profitability of Rs284 billion, which is over 125 percent more than the first half of CY22.

The Deposit Protection Corporation (DPC), a division of the SBP, has added an additional layer of security by offering insurance coverage of up to Rs500,000 to each depositor, the SBP stated.

“In the unlikely event of a bank failure, deposit protection agencies and supervisory authorities around the world use deposit protection as a key component of the safety net to safeguard depositors’ funds,” stated Inayat Hussain.

Nevertheless, as the failing bank is addressed through a regulatory-assisted process, the remaining deposit amounts are also recoverable. Currently, the Deposit Protection Act of 2016 provides full protection to 94% of depositors.

However, as the regulatory-assisted process addresses the failing bank, it also makes the remaining deposit amounts recoverable. The Deposit Protection Act of 2016 currently ensures complete protection for 94% of depositors.

The clarification follows SBP Deputy Governor Inayat Hussain’s statement that the funds of depositors have legal protection worth Rs 500,000 when she briefed the Senate Standing Committee on Finance and Revenue on Deposits Protection Corporation (DPC).

Inayat Hussain issued a warning that individuals with account balances exceeding Rs 500,000 would not be eligible for compensation in the event of a bank failure.

“Depositor Protection in Pakistan: SBP’s Measures and DPC’s Role”

According to the SBP deputy governor, only 6 percent of Pakistani account holders have balances greater than Rs0.5 million, while 94 percent have deposits of less than that amount.

This means that the Deposits Protection Corporation (DPC) in Pakistan is there to protect the great majority of depositors. Each year, the DPC receives subscription fees from banks to support its operations.

He claimed that making all scheduled banks operating in the nation members of DPC was necessary to ensure that the deposits in these banks are covere by the deposit protection system.

SBP officials stated that they had selected a focal person in each bank to assist Politically Exposed Persons (PEP) with their account opening processes while discussing the challenges faced by PEP in opening accounts.