SBP earns Rs1.163 trillion profit in FY2021

KARACHI: The State Bank of Pakistan (SBP) reported a net profit of Rs1.163 trillion in the fiscal year of 2019/20, aided by stable exchange rate, compared with the net loss of Rs1.043 billion during the previous year.

“The stability in the exchange rate allowed the SBP to return to profitability after incurring loss in the preceding year. The profit so earned by the bank in the year ended June 30, 2020 is highest in its history,” the central bank said in its Annual Performance Review for the fiscal year 2019/20 released on Thursday.

The high interest rate prevalent in the first three quarters of the year allowed the bank to accrue significant amount of interest income from the interest sensitive assets, particularly lending to the government and income from the bank’s open market operations, the central bank said.

Further, during the year, the liquidity mopping up operations were relatively on reduced scale and; hence, the interest expense registered a substantial decline.

The total expenses registered 17 percent increase during the year due to increased volume of banknote printing and general and administrative expenses.

The annual performance review also said the SBP’s total assets stood at Rs12.273 trillion as of June 30, 2020, compared with Rs11.467 trillion on June 30, 2019, registering an increase of Rs806 billion, primarily due to increase in the foreign currency accounts and investments.

Similarly, the total liabilities of the bank stood at Rs11.219 trillion as of June 30, 2020, compared with Rs10.761 trillion as of June 30, 2019, registering an increase of Rs458 billion. This rise was primarily led by an increase in the currency in circulation.

“The SBP introduced certain interest free / subsidised refinancing schemes during COVID-19 pandemic. As per the requirements of IFRS-9, the subsidised loans are required to be recorded at fair value. Accordingly, an amount of Rs4,194 million has been recognised as fair valuation adjustment against these loans. This fair valuation adjustment will be amortised and recorded as income over the period of loans,” it said.

SBP Governor Dr Reza Baqir, in the report, said that the second half of the last year witnessed proactive and timely policy measures to counter the emerging risks due to COVID-19 pandemic.

The successful implementation of deep-rooted fiscal and monetary structural reforms in the first half of the fiscal year facilitated rolling out of unprecedented policy support measures to combat the COVID-19 shock.

The central bank adopted a proactive approach in assessing the evolving COVID-19-related situation around the globe and within the country, enabling it to identify the issues in a timely manner and implement policy prescription necessary for ensuring continuous provision of financial services, while limiting the impact of the pandemic, Baqir said.

Besides, lowering the borrowing cost through aggressive monetary easing, the SBP introduced targeted schemes to support employment, health sector and investments in the new / existing projects to stimulate the economy.

These included, introduction of new refinance schemes to prevent businesses from laying off workers (the Rozgar Scheme), encouragement of investment activities through Temporary Economic Refinance Facility (TERF) and providing support to eligible hospitals (Refinance Facility for Combating COVID-19), in addition to enhancing the scope and coverage of the existing concessional refinance schemes.

The report also showed that the SBP complemented these initiatives with a broad range of macro-prudential measures to facilitate the financial sector in supporting the real sector of the economy, preserve the solvency of the borrowers and enhance the loss absorption capacity of banks.

The host measures included reduction in capital conservation buffer, launching of a comprehensive package to facilitate the borrowers in restructuring or deferment of principal amount of their loans, decrease in the debt burden ratio for consumer finance and relaxation of margin requirement for exposure against shares of listed companies.

The policy initiatives and support measures are estimated to have provided a stimulus of around Rs1.6 trillion, or 3.9 percent, of GDP.

Ensuring availability and continuity of financial services remained the other key focus of the SBP for alleviating the stress driven by the pandemic and keeping confidence of the customers in the banking system. More specifically and despite the pandemic in FY2020, the country’s external accounts improved markedly due to effective monetary and exchange rate policies along with fiscal consolidation.

Of key note is a successful transition of the exchange rate system to a flexible market-based system, which helped tame the current account deficit, while the average annual inflation in FY20 on the basis of the new-base was 10.7 percent, slightly below the SBP’s projection of 11 to 12 percent at the start of the year.

The forex reserves of the central bank also registered strong growth during FY20 with an annual increase of $4.8 billion, whereas remittances increased to a record high of $23.12 billion, despite the unprecedented global dislocation caused by the COVID-19 pandemic.

The increase in SBP’s gross reserves was attained not due to higher net external borrowing of the government, but instead due to the reserves building operations of the SBP during the first nine months of the fiscal year before the impact of COVID-19 struck.