KARACHI - The scheduled banks' advances growth is likely to plunge to around 7 per cent for the whole calendar year 2008 amid higher interest rates and slowdown in credit-offtake penetration. Similarly, owing to deceleration in money supply growth (M2) attributed to the lack of foreign inflows and government commitment to retire SBP borrowings, banks' deposits portfolio is projected to grow by 8 per cent for 3 years (2008-10 lower than 5 years (2003-07) average annual growth of 19 percent, looking at the current monetary tightening environment and liquidity crunch. However, investments portfolio of the banking sector may boost to a certain level as banks would park any excess liquidity to investments.  Farhan Rizvi, analyst at JS Research, assumed that banking sector profit to decline by 1% in 2009 as slowdown in credit off-take and higher non performing loans would hurt earnings. According to the State Bank of Pakistan's recently released statistics of the scheduled banks' on assets and liabilities during the second month of current quarter CY08 (Aug 30, 2008), the gross advances of scheduled banks slowed to Rs2.89tn (US$37.8bn) from Rs2.94tn (US$43.0bn) at end June 2008, depicting a decline of 2%. As a result, advances growth in 8 months (Jan-Aug) 2008 declined to 9% as against average growth of 23% in 5 years (2003-07). However, after adjusting these advances against provisions of Rs191bn, net advances of the industry arrived at Rs2.7tn (US$35.3bn). While advances growth remained reasonably strong in 1H2008 (11%) due to committed corporate borrowings in the power and agriculture sectors, higher interest rates have started to affect lending. As evident from the recent slowdown, higher interest rates are likely to further dent the credit appetite of the industry however, at the end of August 2008, credit penetration in Pakistan has reached 29% of GDP versus 28% recorded at the end of 2007. SBP data showed that total deposits of the banking sector have reached Rs3.8tn ($49.4b) as of Aug 30, 2008. While this depicted a modest growth of 6% in 8M2008 from Rs3.6tn ($57.4b) at the end of Dec 2007, the growth has seen a declining trend post June 30, 2008.  According to the latest statistics, deposit growth declined by 1% in 2M (Jul-Aug) FY09 from Rs3.8bn (US$55.9bn) at the end of June 2008. While this decline is seasonal in nature, After witnessing an abnormal growth of 56% in 2007, banks' investment portfolio returned to normal levels as investments declined by 17% to Rs1.0tn (US$14.8bn) as of June 28, 2008. However, the decline in credit offtake in the last two months helped some recovery in investments portfolio as it posted a 2% growth in 2M (Jul-Aug) 2008. As a result, overall decline in investments during 8M (Jan-Aug) 2008 stood at 15%.