Banks were supposed to have it tough in CY16, as the interest rates were sitting at record lows and yields on assets had declined significantly. But bigger banks had other plans, as the top five combined to sustain their after tax profits year-on-year, despite pressure on topline mark-up income. All this while, the big five banks continued to boost their balance sheets, as the asset base soared by 11 percent over 2015.
The topline growth remained understandably subdued, despite a healthy volumetric increase in earning assets. For a change, and good one at that, advances outpaced investments in CY16. The uptick in advances was long overdue, and much improved macroeconomic conditions were always going to come to play at some stage. Advances increased by a considerable 13 percent over December 2015. The combined ADR in CY16 stood virtually at yesteryears level of 42 percent.
That said, investments in government securities continued to form the bulk of asset mix, with an IDR as high as 83 percent. The growth in investments was a much modest 5 percent, as the yields on PIBs and treasury yields became ever so less lucrative. The IDR slid from 71 percent in 2015 to 67 percent. The shift in asset portfolio seems to have finally started and should only gather pace in the quarters to come.
The liability side showed impressive growth, maintaining a healthy 12 percent increase in deposit base over December 2015. What is impressive is the way in which the deposits are being added. The focus seems to be towards adding current accounts, and the cost of deposits has visibly come down in the process, as CASA continues to improve.
Another healthy trend is a massive reversal in provisioning charges, which helped a great deal in limiting the profitability loss during CY16. The NPLs have receded, and are adequately provided for across all five banks.
Whether or not, there is a change in the big banks asset strategy, is anyones guess but a gradual shift towards advances seems apparent. The big banks have all their performance indicators in pretty decent shape and appear well poised to pounce on any private sector credit opportunity, if and when it arises.
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