Advances to private sector up 6.1 percent in April-June

KARACHI: Gross advances to private sector rose 6.1 percent for the quarter ended 30 June as compared to four percent growth in the period under review, the central bank said on Friday.  

The State Bank of Pakistan (SBP), in its quarterly performance review of the banking sector, said the asset quality of the banking sector further improved as gross non performing loans ratio moved down to 9.3 percent as of end June 2017 from 9.9 percent as of end March 2017 (and 11.1 percent as of end June, 2016).

Banking sector earned profit (before tax) of Rs150.4 billion with strong return on assets of 1.8 percent and return on equity of 21.9 percent.  “Encouragingly, interest earnings (year-to-date) have increased by 1 percent in Q2CY17 (against 8.6 percent decline during the same period last year) on account of income on advances,” SBP said in a statement.

The central bank said capital adequacy ratio of the banking sector at 15.6 percent is well above the minimum required level of 10.65 percent and banks have enough buffers to meet additional financing of the market.

“Key development of the quarter is broad based and robust growth in advances to private sector which is also the prime reason behind 8.3 percent growth in the asset base,” it added. Besides seasonal financing need for commodity procurement, SBP said the financing demand has come from various sectors, including chemical/pharmaceutical, production and transmission of energy, agribusiness, food and allied products, construction, transport and storage. 

“Moreover, the continued growth in auto financing has pushed consumer financing up,” it added. “The surge in advances may be attributed to enabling macroeconomic conditions such as monetary easing which has lowered the cost of borrowing and positive feedback from the real economy – particularly the consistent activity in large scale manufacturing.” 

The central bank said investments increased 5.6 percent and government papers remained the prime attraction.  “There is a change in investment pattern, though, as banks have mostly invested in short-term MTBs (market treasury bills),” it added. “Continuous rise in investment in government securities has further strengthened the already comfortable liquidity position of the banking system.”  The banking sector’s deposit base rose 6.5 percent in Q2CY17, slightly lesser than 6.8 percent in Q2CY16. 

“The deceleration in deposit growth is mainly caused by dip in financial institutions’ deposit – which are transitory in nature,” SBP said. “…the customer deposits – relatively more stable funding source and comprising 96.5 percent share in overall deposit base – has surged by 7.7 percent; higher than 6 percent during the corresponding period last year.”