When it comes to savings, the public sector loves to stick to their own kind. According to a review of annual accounts of the commercial banking industry, fifty percent of the bank deposits by governments and public sector corporations were held with just four state owned banks as at December 2023.
That’s logical. Banks are in the business of making money, and if they are going to make money off the taxpayer, it is preferable that those profits go back to the exchequer, to the maximum degree possible. At least as long as the markup rate earned by the public sector depositors is market competitive, meaning that it matches the highest rate offered by any privately owned bank with a similar rating.
But what about the other half? Turns out, the rest of the commercial banking industry made up of 20+ privately held banks holds the other half of public sector banking deposits. Some names – such as HBL – are obvious winners. Pakistan’s largest commercial bank holds 10 percent of public sector deposits (governments and corporations), compared to its 16 percent share in deposits by the private sector. UBL is a similar story, with a 5 percent share in public sector deposits, and 10 percent share of private sector deposits. Top-rated largest commercial banks trusted highly by both public and private sector depositors makes sense too. But the rest of the industry hardly paints a cogent picture.
Three private banks put together – account for roughly a quarter of public sector deposits with the banking industry. These are not the top three, nor are they the highest rated. If it is the lucrative returns depositors are after, these banks do not feature among the top-5 preferred by the private sector depositors. Yet, when it comes to taxpayers’ money, Askari Bank, Bank Alfalah, and Allied Bank are the top-rated choice of public sector depositors (governments and PSEs), and in that order.
In fact, Askari Bank has averaged a 10 percent share in public sector deposits in recent years, even higher than HBL in 2022. It is the most trustworthy bank for your typical public sector depositor, third only to National Bank and Bank of Punjab by its share in total public sector banking deposits, the latter two borne more out of procedural necessities involved in federal and provincial taxes and cess collection than an outcome of preference. Askari’s share in private sector deposits, on the other hand, is only three percent, meaning the bank is disproportionately dependent on public sector money to stay afloat. For context, over forty percent of total banking deposits for Askari pertain to the public sector. Must be one hell of a markup rates on those checking accounts.
Allied Bank isn’t far behind, accounting for six percent of total public sector deposits. But compared to Askari, at least its share in public sector deposits is right-weighted, meaning it is exactly in line with ABL’s share in total deposits by private sector. Of course, this is made possible due to larger banks such as HBL and UBL having an underweight share in public sector deposits. But that’s probably not the headline.
That’s the one about banks least trusted by the public sector. Three large banks – namely, Meezan, MCB, and Bank Al Habib – account for 25 percent of private sector deposits, that’s you and me, but just five percent of total public sector deposits. Not only are these one of the largest and most highly rated privately held commercial banks, but also regularly compete for the top-5 slots, ranked by share in total industry’s deposits.
In summary, a superficial analysis of banking annual accounts would indicate that some privately held banks get more than their fair share of the public sector’s love. Maybe there exists a perfectly innocent explanation of this phenomenon; for example, an above market rate of return on public sector deposits offered by what appears to be the most favored bank. Since banks are not required to disclose average rate of returns on deposits by depositor type, there is really no way to know for sure. On the other hand, if public sector deposits also adhered to explicit guidelines or rules – and were not based on the whimsy – there would be no cause for speculation.
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