Investment in saving accounts plunges 38.65%

KARACHI: The investment in the national saving accounts has sharply declined 38.65 per cent, owing to the introduction of documentation by the government.

The investment in the saving accounts plunged to Rs599.17 billion by December 31, 2022, compared with Rs976.74 billion a year ago, according to the data released by the State Bank of Pakistan (SBP).

Industry sources said the documentation drive impacted the growth of investment in saving schemes. To comply with the mandatory conditions of the Financial Action Task Force (FATF), the government introduced the National Savings (AML and CFT) Regulations.

The purpose of the regulations were to ensure documentation of the money invested in saving schemes and identify the persons making investment by own or on someone behalf.

Under these regulations, the Central Directorate of National Savings (CDNS) is required to identify and verify all the customers. The CDNS is required to conduct customers’ due diligence for the purpose of preventing money laundering and terrorism financing.

“The CDNS shall identify the customer and verify the identity of that customer using reliable and independent documents, data or information,” according to the regulations.

The regulations make it mandatory for the customers to declare the source of money that is used for investment.

The documentation drive also adversely impacted the investment in the saving certificates. The investment in saving certificates also recorded a decline of 5 per cent to Rs2.36 trillion by the end of the calendar year 2022, compared with Rs2.48 trillion a year ago.

Under the latest documentation drive, the government also withdrew the circulation of bearer prize bonds of Rs7,500, Rs15,000, Rs25,000 and Rs40,000 denominations.

The investment in the bearer prize bonds drastically fell to Rs324 billion in the calendar year 2022, compared with around Rs400 billion two years ago.

During the last two years, the investors had surrendered most of the bearer bonds, which the government had withdrawn.

The Ministry of Finance launched the withdrawal of the unregistered prize bonds in a phased manner. On June 24, 2019, the government announced to discontinue the circulation of Rs40,000 denomination national prize bonds.

Similarly, on December 10, 2020, it announced to discontinue the circulation of Rs25,000 denomination prize bonds. In April 2021, the ministry announced that the national prize bonds of denominations Rs7,500 and Rs15,000 would not be sold.

Since June 2019, the government has repeatedly extended the date to exchange the bearer bonds. The investors of the bearer bonds have been given the last chance to exchange or en-cash by June 30, 2023.

However, the premium prize bonds (registered) recorded an increase in investment to Rs57 billion by December 31, 2022, compared with Rs54.92 billion a year ago.

The sources said that a significant hike in the benchmark rate was another reason for a decline in saving schemes investment.

The central bank on January 23 increased the policy rate by 1,000 basis points from September 2021 and brought it to 17 per cent. It is consistently increasing the benchmark rate to arrest the inflationary pressure.

Meanwhile, the higher interest rates helped the banking companies buffer the stock of deposits.

The banking deposits grew 14 per cent to Rs22.75 trillion by the end of January 2023, compared with Rs19.95 trillion by the end of the same month a year ago.