Banking sector ADR rises to 47.8%

The banking sector's Advance-to-Deposit Ratio (ADR) improved to 47.8% as of November 29, 2024, up from 44.3% in October and recovering from a low of 38.4% in August. This marks a notable increase of 944 basis points (bps) in just three months, reflecting banks' efforts to meet the mandatory 50% ADR threshold by December 31, 2024. Failure to achieve this target will result in additional taxes, with a 10% tax on income from government securities for an ADR between 40% and 50% and a 16% tax for ratios below 40%. To meet the deadline, banks have employed various strategies, including offering short-term loans to sister companies and trusted corporate clients. According to Tahir Abbas, head of research at Arif Habib Limited (AHL), the ADR's improvement indicates that banks are increasingly channelling deposits into loans, which could signify improved credit activity in the economy.