KARACHI - In view of the current tight monetary scenario and liquidity crunch, the banks' deposits are likely to grow by 8 per cent for next 3 years (2008-10) amid slowdown in money supply growth and foreign inflows. The full year advances growth for 2008 is expected to range between 13 and 14% owing to the expectations that an additional 50-100bps hike could also be in the offing in next policy statement expected by end of July 2008, research Analysts said.   The sector's profitability is anticipated to grow by 7% in 2008, and 4% in 2009. Moreover, while sector's advances growth has been promising despite a tight monetary policy the impact of the monetary tightening is likely to be felt in the 2H2008 and beyond. According to JS Research report, despite monetary tightening, which saw SBP raise discount rates by 200bps during 1H2008, advances growth remained strong as banks already had committed corporate borrowings in the power and agriculture sectors. Moreover, government borrowings from commercial banks to pay outstanding Price Differential Claims to OMC's also contributed to the robust advances growth. At the end of FY08, credit penetration in Pakistan has reached 29% of GDP versus 28% recorded at the end of 2007. In FY08 (until June 28, 2008), scheduled banks' total deposits grew by 11%, which is also lower than the average deposit growth of 19% during 5 years (FY03-07). Once again slow M2 growth could be attributed as major reason for the decline in deposit growth. The M2 growth during FY08 (June 28, 2008) stood at 13.29%, which was lower than both 19.3% growth in FY07 and government target of 13.8% for FY08. With KIBOR rising to 13% in the immediate aftermath of the 150bps discount rate hike on May 21, 2008, a negative growth of 0.2% was witnessed in advances until June 28, 2008. Report said, on a fiscal year basis though, advances growth in FY08 was recorded at 18%, only marginally higher than last year's growth of 17%. This growth was however still lower than 5 years (FY03-07) average growth of 21%. Political unrest especially in the 2H2007 was main reason for slower growth in FY08 especially as advances growth surprisingly came in strong during 1H2008. On the fiscal front, investments declined by 10% in FY08, implying that fall in investments started in second half of FY08, as advances growth picked up pace after Feb 18, elections with a post election growth of 8% until July 21, 2008. According to the SBP statistics of the scheduled banks' assets & liabilities as of Jun 28, 2008, total customer deposits of the banking industry have reached Rs3.8tn (US$56.2bn) as of June 28, 2008. This depicted a modest growth of 7% from Rs3.6tn (US$57.4bn) at the end of Dec 2007. This growth is lower than the average annual deposit growth of 10% for the same period in the last 5 years (1H2003-07). The main reason behind this lower deposit growth is the liquidity crunch in the economy during 1H2008, which resulted in slower growth in money supply (M2). As per SBP, M2 growth in 1H2008 (as of June 21, 2008) stood at 4.1%, which is less than half the growth of 8.5% witnessed in 1H2007.  The gross advances of scheduled banks reached Rs2.9tn (US$43.1bn) as of June 28, 2008. However, after adjusting these advances against provisions of Rs183bn, net advances of the industry arrived at Rs2.8tn (US$40.4bn). As far as 1H2008 advances growth is concerned, it stood at 11%, which is higher than growth of only 3% and 4% in 1H2007 and 1H2006 respectively. After witnessing an abnormal growth of 44% in 1H2007, banks' investment portfolio returned to normal levels as investments declined by 17% in 1H2008. Investments stood at Rs1.0tn (US14.8bn) as of June 21, 2008, as against investments of Rs1.2tn (US$19.5bn) recorded in Dec 2007. It had been mentioned that banks in 2H2007 had temporarily parked their excess liquidity as investments, which would ultimately end up in advances. This is exactly what happened in 1H2008.