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Response of Deposits to Fixation of Minimum Rate of Return: Evidence from Pakistan’s Banking System

Author

Listed:
  • Muhammad Ejaz

    (State Bank of Pakistan)

Abstract

This paper evaluates the impact of the policy of fixing a minimum return on deposits on growth in deposits. The analysis, based on balance sheet data of 36 banks for the period from 1Q2008 to 2Q2019, shows that 4-quarter moving average growth in total, fixed, and saving deposits declines because of fixing minimum rate of return. This result varies considerably across maturity buckets and types of banks. The event analysis conducted over different sizes of the banks shows that deposit growth was lower for smaller banks and higher for big banks. This indicates redistribution of deposits from small to big banks. The evidence points towards the possibility of policy induced changes in the pricing behavior of the smaller banks, who may have been overpricing their deposits before the fixation of minimum rate.

Suggested Citation

  • Muhammad Ejaz, 2020. "Response of Deposits to Fixation of Minimum Rate of Return: Evidence from Pakistan’s Banking System," SBP Working Paper Series 105, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:105
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    File URL: https://www.sbp.org.pk/publications/wpapers/2020/wp105.pdf
    File Function: First version, 2020
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    More about this item

    Keywords

    Deposit; monetary policy; interest rate;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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