The State Bank of Pakistan (SBP) sees a surge in the private sector lending in coming days on an accommodative monetary policy and improved energy supplies. According to Quarterly Performance Review (QPR) of the Banking Sector for the quarter ended 30th September 2015 released by SBP, the banking sector of Pakistan is performing well as the industry has earned a Rs 148 billion profit after tax during first nine months (January-September) of this calendar year (CY15) as against Rs 115 billion in the same period of CY14, depicting an increase of 28 percent or Rs 33 billion.
Going forward, SBP is expecting that banks'' profitability may improve in the future on account of a sizeable mark-up income on high level of investments, a likely increase in private sector advances and lower interest expense on deposits due to prevailing interest rate environment. However, the adjustments on account of provisions against bad debts by the year end may keep a check on further growth in profits, it added.
SBP said that with a pickup in economic activity and the start of rabi season of cotton harvesting (textile sector) and cane crushing (sugar sector), the banking sector advances are expected to rise in December 2015.
"An accommodative monetary policy and improved energy supplies may enhance the private sector lending. However, persistent low inflation particularly commodity prices may keep the financing need for the working capital subdued," SBP added.
The risks to the performance of banks largely emanate from their ability to generate low cost funds. In order to finance the growth of both advances and investments, in the coming quarter, banks need to focus more on deposit mobilisation, the QRP said.
According to report, the seasonal decline in lending activities and a rise in eligible capital has augmented the Capital Adequacy Ratio (CAR) to 18.2 percent well above the local benchmark of 10 percent and international benchmark of 8 percent.
In addition, asset quality has remained stable and growth in equity and increase in provisions has improved the capital impairment ratio. Banks'' investment in government papers has resulted in an increase of 2.1 percent in the asset base of the banking system, although the deposit base has shown a seasonal fall.
Return on Assets (ROAs) before tax has increased to 2.6 percent in Sep 2015 from 2.2 percent in Sep 2014. A marginal rise of 2.1 percent was observed in the asset base of the banking sector end of the third quarter.
Public sector demand for credit remained strong due to fiscal needs while private sector advances witnessed a nominal seasonal decline of 0.4 percent. Well aligned with the domestic credit cycle, deposits also declined by 2.6 percent. Banks, therefore, relied more on borrowings which grew by 38 percent during the quarter.
On the soundness of banking sector, the report added that the asset quality remained stable as None Performing Loans (NPLs) almost stayed unchanged at Rs 630 billion. However, the NPLs to Loans Ratio (infection ratio) marginally increased from 12.4 percent in Jun-14 to 12.5 percent in Sep-15 on account of a seasonal fall in advances. Net NPLs to net Loans ratio, however, declined to 2.5 percent from 2.7 percent in Jun-15 due to rise in accumulated provisioning against infected loans.
Gross advances marginally declined by 0.2 percent or Rs 10.5 billion during Sep 2015 mainly due to retirement of Rs 39.0 billion sugar financing and Rs 32 billion textiles. Other sectors, however, observed positive credit off-take including agribusiness (Rs 52.8 billion2), chemical & pharmaceutical (Rs 19.3 billion), and production & transmission of energy (RS 13.8 billion). The report said that the banking system is cushioned with high level of capital that may be utilised in any exigency.
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