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

Muhammad Ejaz

No 105, SBP Working Paper Series from State Bank of Pakistan, Research Department

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.

Keywords: Deposit; monetary policy; interest rate (search for similar items in EconPapers)
JEL-codes: E43 E58 G14 G21 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2020-12
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