ISLAMABAD:  Some banks operating in Pakistan are aggressively seeking medium- and long-term deposits by offering profits, in advance, to customers. Analysts told that such offers by certain banks may be viewed in the context of a beleaguered banking sector trying to overcome its liquidity crisis through launch of an innovative product in the domestic market.

THEIR OBJECTIVE: to generate liquidity for the medium to the long term, with the capacity of fuelling the wheels of productivity. These products would attract those individuals who want to undertake consumption today rather than defer it to future - an understandable focus in these trying times with inflationary pressures touching 25 percent last month.

Analysts say that the prepayment of profit improves the cash flow of the depositor and bank, and the bank gets the deposit for a fixed period without any danger of its withdrawal. So, it is a win-win situation for both--the depositor and the bank. They say that such kinds of schemes are being offered after obtaining due authorisation of the State Bank of Pakistan (SBP).

They add that it is not unusual to offer profit, in advance, to the depositors, as other banks have also offered advance profit schemes for the general public. For example, the CIMB Group, Malaysia's second largest financial services provider and fifth largest in Southeast Asia by total assets, has also offered advance profits to depositors amongst its other products. The CMIB is owned by Bumiputra-Commerce Holdings Berhad (BCHB), which is listed on Bursa Malaysia with market capitalisation of RM26.6 billion.

Analysts argue that banks today are ready to give advance profits to customers to maximise their deposits. Although this type of saving deposits are high cost deposit for banks as they are paying high profits compared to current deposits, yet its merit lies in the fact that the value of money today is higher than it is forecast to be in the relatively near future.