KAEACHI - The deposit base of the scheduled banks grew by 9.5 per cent to Rs4.2 trillion during the first nine months (January-September) of current calendar year, while advances witnessed a meagre growth of just 0.4 per cent in the same period of last year. State Bank of Pakistan (SBP) recently released statistics of the scheduled banks assets and liabilities for the period ended September 26, 2009. The break-up of the assets and liabilities data revealed that deposits portfolio of the banking system stood at $50.1billion during January-September 2009. The upward trend in the banks deposits growth is attributed to improvement in banks Net Foreign Assets (NFA) ceiling in the last two consecutive quarters. In addition to that, recovery in money supply situation drove the recent upsurge in deposits. However, gross advances continued their sluggish run as amounted to Rs3.2 trillion ($37.9billion) during the period under review. High interest rates, sharp contraction in LSM growth and more stringent lending procedures had contributed to the dismal advances performance. On a quarter-on-quarter basis, banks deposits slashed by 3 per cent in July-September 2009, compared to a 3.7pc rise in the previous quarter. On a QoQ basis, credit off-take dipped by 0.6pc in July-September compared to growth of 2.4pc in the preceding quarter. Moreover, as deposits growth outpaced credit off-take during the current period banks continued to park excess liquidity in investments portfolio as reflected growth in investments, up 54 per cent in Jan-Sep 2009. M2 expanded by 9.6 per cent during the period while NFA grew by 41 per cent. The 9.5 per cent growth for (Jan-Sept) 2009 is inline with past trends however it is significantly higher than 6 per cent growth recorded in the corresponding period last year. LSM in particular posted dismal numbers with an average contraction of 11 per cent YoY growth during (Jan-Jun) 2009. Moreover, provisions for Non Performing Loans (NPLs) remained a key earnings dampener, rising by 26 per cent or Rs55b in 9M2009. There has been however some respite in the pace of new provisions with incremental provisions of Rs15 billion recorded in 3Q2009 as against Rs21b in 1Q2009. Slowdown in NPL accretion in the 2Q2009 and dismal credit off-take numbers in 2009 have resulted in improved provisioning figures in the last quarter. Given the declining interest rate scenario and higher risk of NPLs, banks preferred investing in government securities as investment surged by 54 per cent to Rs1.5 trillion ($18.1billion) as of Sep 26, 2009. This is supported by M2 data which shows government borrowing from the banks stood at Rs318 billion ($3.8 billion) in 2009 to date. Going forward, given relative stability in deposits and no major appetite for credit some analysts see investments consolidating at current levels in 4Q2009.