Banking sector assets rise 2.17pc to Rs28.79trln by end-Sept

KARACHI: The value of assets held by banking sector rose 2.17 percent to Rs28.790 trillion as of end-September quarter from the quarter before, the central bank said on Tuesday, as post- pandemic economic recovery boosted demand for loans from businesses and consumers.

The State Bank of Pakistan (SPB in its quarterly report ‘Statistics of the Banking System for July-September 2021’ said assets held by banks grew by 20.9 percent year-on-year, surpassing 0.44 percent growth attained in corresponding period of the last year.

“This expansion has been particularly contributed by the domestic private sector advances, which increased by 3.8 percent during the third quarter of 2021 (16.6 percent increase year-on-year) against a contraction of 0.5 percent during the corresponding period of the last year,” the report said.

“The increase in advances remained broad based reflecting a general recovery in the economic activity as well as the impact of higher input prices.”

Net banks’ advances rose to Rs9.173 trillion in July-September from Rs8.808 trillion a quarter earlier.

The healthy growth in credit to the private sector is quite encouraging, as it will prop up the low credit incidence in Pakistan as measured by domestic private credit to GDP ratio, the report said.

Moreover, SBP’s refinance schemes announced in the wake of Covid-19, particularly the Temporary Economic Refinance Facility (TERF), has been supporting the private sector credit growth in the last few quarters.

“However, the banks have increased the credit disbursements from their own sources during the period under review and the trend continues post quarter,” it added.

The construction and housing finance also emerged as notable sectors, which are witnessing healthy increase in credit off-take.

Importantly, SBP assigned targets for housing finance to the banks in July 2020 and the government’s markup subsidy programme for housing finance ( Mera Pakistan Mera Ghar scheme) announced in October 2020, played a key role in enhancing the overall credit to the housing sector.

“The banks are actively participating in these initiatives for increasing the mortgage finance that will help a greater portion of the population in construction and purchase of houses.”

On the funding side, banks’ deposits increased 0.36 percent to Rs20.516 trillion during the quarter. That compared with 0.80 percent growth in the same period of previous year.

On a year-on-year basis deposits attained an encouraging growth of 16.9 percent. The report said the trends in key financial soundness indicators remained encouraging.

Banking sector’s credit risk indicators improved further as the gross non-performing loans (NPLs) to total loans ratio decreased to 8.8 percent at end September, 2021 from 9.9 percent a year ago.

“This improvement came on the back of a rise in loans and lower fresh delinquencies.”

Due to increase in provisioning against NPLs, the provisions coverage ratio improved to 88.9 percent by the end of July-September 2021, compared with 84.6 percent a year earlier. Accordingly, net NPLs ratio declined to 1.1 percent at the end of the third quarter of 2021 from 1.7 percent in the previous year, indicating lower residual risk to solvency from delinquent loans.

The earning indicators of the banking sector witnessed some moderation as the return on assets stood at 0.95 percent in the third quarter of 2021 compared with 1.13 percent in the same period of 2020.

The solvency of the sector remained strong as the capital adequacy ratio at 17.9 percent stayed well above the minimum domestic regulatory benchmark of 11.5 percent and the global standard of 10.5 percent.

“The quarterly stress test results also reveal that the banking sector is likely to remain resilient even under reasonably severe economic shocks over a protracted period of time,” the report said.