Banking sector’s advances up 17pc in 2017

KARACHI: Banking sector’s advances grew 17 percent to Rs6.53 trillion in 2017 as soft interest rate whetted appetite of funds for industrial sector’s expansion, a brokerage report said on Tuesday.

Banking sector’s advances amounted to Rs5.57 trillion in the previous calendar year, according to Topline Securities.

Analyst Umair Naseer at Topline attributed the growth in advances to rising economic growth, multi-decade low interest rates, growth in large scale manufacturing and rising capacity expansions. The central bank kept its key policy rate unchanged at 5.75 percent since May 2016 to support growth.

“The prospects of achieving 6 percent target of real GDP growth (in FY2018) continue to be strong,” the State Bank of Pakistan said in its latest November monetary policy statement. The growth was recorded at a decade-high of 5.3 percent during the last fiscal year of 2016/17. Advances to deposit ratio (ADR) improved to 53 percent in 2017 as compared to 50 percent in 2016.

“This indicates an encouraging trend as growth in advances outpaced deposit growth during the year,” Naseer added. “Going ahead, advances could grow further despite our expectation of rate hike as ADR is still low compared to level of over 70 percent seen in 2008.”

In 2017, deposits of banks increased 10 percent to Rs12.36 trillion. The growth was 20 percent in the previous year.

The analyst said banks focused on improving their deposit profile rather than going after volumes in 2017.

Private sector’s credit rose 11 percent during the first 11 months of 2017 as compared to six percent growth in the corresponding period a year earlier.

Banking sector’s investment continued to rise, posting a growth of 18 percent to Rs8.54 trillion in 2017. Consequently, investment to deposit ratio (IDR) increased to 69 percent from 65 percent a year earlier. “Banks as of December 2017 stood more leveraged as compared to the last year,” Naseer added. “They (banks) have used repo borrowing to earn a positive spread on investments, evident from the sum of IDR and ADR, which has crossed 122 percent in 2017 versus 114 percent in 2016.”