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Pakistan banking industry maintained its upward trajectory during Q3CY21, as assets of the sector increased 2.17% during the period over the last quarter (20.9% growth on a YoY basis).

The increase surpassed 0.44% attained in the corresponding period of the previous year, revealed State Bank of Pakistan (SBP) Quarterly Compendium: Statistics of the Banking System for Jul-Sep, 2021 (Q3CY21) published on Tuesday.

The compendium offers data coverage on major financial statistics as well as Financial Soundness Indicators (FSIs) of the banking sector, showing that the asset expansion has been particularly contributed by the domestic private sector advances, which increased by 3.8% during Q3CY21 (16.6% increase YoY) against a contraction of 0.5% during the corresponding period of the last year.

On funding side, deposits increased by 0.36% during the quarter as compared to 0.80% growth in same period of previous year. On a YoY basis, deposits attained an encouraging growth of 16.9%.

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The SBP said that the increase in advances remained broad-based, reflecting a general recovery in the economic activity as well as the impact of higher input prices. “The healthy growth in credit to the private sector is quite encouraging, as it will prop up the low credit incidence in Pakistan as measured by domestic private credit to GDP ratio,” read the statement.

It added that schemes including the Temporary Economic Refinance Facility (TERF) has been supporting the private sector credit growth in the last few quarters. However, the banks have increased the credit disbursements from their own sources during Jul-Sep-2021 quarter and the trend continues post quarterly.

Furthermore, construction and housing finance also emerged as notable sectors, which are witnessing a healthy increase in credit off-take.

The SBP said that banks are actively participating in initiatives including the Government of Pakistan Markup Subsidy Program for Housing for increasing the mortgage finance.

“The trends in key financial soundness indicators remained encouraging,” SBP said.

Meanwhile, banking sector’s credit risk indicators improved further as the gross Non Performing Loans (NPLs) to total loans ratio decreased to 8.8% at end September, 2021 from 9.9% a year ago. “This improvement came on the back of a rise in loans and lower fresh delinquencies,” the central bank said.

Whereas, the provisions coverage ratio improved to 88.9% by the end Q3CY21 compared to 84.6% a year earlier.

Accordingly, net NPLs ratio declined to 1.1% at the end Q3CY21 from 1.7% in Q3CY20, indicating lower residual risk to solvency from delinquent loans.

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The earning indicators of the banking sector witnessed some moderation during Q3CY21 as the Return on Assets (ROA) stood at 0.95% in Q3CY21 compared to 1.13% in Q3CY20.

The solvency of the sector remained strong as the Capital Adequacy Ratio(CAR) at 17.9% stayed well above the minimum domestic regulatory benchmark of 11.5% and the global standard of 10.5%.

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