Banks were supposed to have it tough for much of first half of CY17. And there were reasons to believe as the interest rates were down significantly, spreads went low, and non mark-up income avenues were not as lucrative. That the banking industry in general, and the top five banks in particular coped with the situation, is testament to efficacy of their risk-averse and prudent strategies, even in times of such low interest rates.

The combined top-line of the big five banks remained flat during 1HCY17 year-on-year, despite a sizeable double digit asset growth. The growth in earning assets continued to remain tilted in favour of investments. But on the positive side, advances too, grew considerably by 11 percent over December 2016. The ADR as a result, improved slightly from 41 percent in December 2016 to 43 percent as at June end 2017.

Low yields on earning assets ensured limited top-line growth. The spreads continued to fall further, as most big banks had almost reached optimal deposit mix, and the pressure on spreads had to come at some point. The cost of deposits for the big five increased slightly during the period. The efforts on the liability side continue to be focused on adding the right kind of deposit, with an eye to continuously improve CASA. But for most banks, CASA is already on the higher side, which will eventually compel banks to look for more avenues to boost income, should spreads continue to be depressed.

A massive change was witnessed in the provisioning expense for the period, which went down by nearly 10 times. Most banks had done the hard years to clean the loan books, be more prudent and shown increased recovery efficiency.

Another feather in the cap was a remarkable turnaround of events relating to NPLs. Banks have not lent aggressively and have rather focused more on lending carefully and cleaning the books. The NPLs have gradually come down and the coverage has significantly improved. The NPLs have remained on the lower side, with an infection ration in single digits, and adequately provided for.

Most banks have expressed a desire to be more open to private sector lending going forward, as genuine demand is expected to pick up, as CPEC heats up. The macroeconomic situation, especially on the current account front, maybe worrisome for the time being. But the interest rates may well have bottomed out already and there is high chance that rates are revised up, and banks would dearly welcome that.